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How We Review Brokerage Companies and Online Trading Platforms
Reviewed by Andy Smith
Investopedia’s list of the best online brokerage platforms is based on in-depth research and robust data across 26 companies that offer trading and investing services. We reviewed each broker’s research amenities, trading technology, range of offerings, and much more. This guide explains the categories and criteria we used to evaluate each company’s offerings and our scoring process for determining the best online trading and investing platforms.
Our editors and researchers independently evaluate all recommended products and services to help our readers understand which companies are best suited for their goals and experiences, whether they are long-term investors or active traders. If you click on the links we provide, we may receive compensation. Our advertising partnerships are not a factor in how we evaluate products, though they may affect the order of products you see listed in our articles.
How We Research Online Brokerages
To provide the best information to consumers looking for an online broker that best fits their needs, we developed a comprehensive ranking methodology based on a variety of factors that are crucial in evaluating the offerings and usability of these platforms.
By combining industry research, subject matter expertise, and investor survey data, we developed a proprietary scoring methodology that allowed us to grade these often complex platforms based on 11 major categories and 89 criteria. You can trust that Investopedia is providing you with an unbiased and comprehensive review of the top online brokers because of this all-encompassing methodology.
To collect the data, we asked the 26 companies to complete a digital survey consisting of 110 questions. The responses to 89 of these questions were weighted as part of our scoring model, while the 21 remaining responses were used for editorial purposes. In addition, we had our team of researchers and editors verify the survey responses and collect any missing data points by conducting online research and contacting each company directly.
Many of the brokers we reviewed also performed live demonstrations of their platforms and services for us via video conferencing methods. We also obtained live brokerage accounts for most of the platforms we reviewed, which our team of expert writers and editors used to perform hands-on testing.
Online Broker Evaluation Categories
Based on a combination of investor survey data and subject matter expertise, we developed the following category weights:
Online Broker Evaluation Criteria
These categories were then broken down into 89 weighted criteria, resulting in 2,314 data points that comprise our scoring rubric.
Through this all-encompassing data collection and review process, Investopedia has provided you with an unbiased and thorough review of the top robo-advisors.
Data Scoring
- Data points are scored on a 0.00 – 1.00 scale
- Binary criteria = [0,1]
- Scaled criteria (e.g., 5-point) = [0.00, 0.25, 0.50, 0.75, 1.00]
- Continuous criteria, minimum value in the database was re-scaled to 0.00 and maximum value was re-scaled to 1.00
Research Amenities
For traders and investors who are active in managing their finances, conducting research is a critical step in making buying and selling decisions. By studying and evaluating key elements such as price action and industry fundamentals, individual investors can make more informed investment choices.
The best online brokers provide both proprietary and third-party research, making it easy for investors to screen for key technical and fundamental criteria while helping them research the growth prospects of a wide range of companies and industries.
This entire section accounts for 13.00% of the total weighted score in our evaluation.
Screeners Offered
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the largest selection of screeners (ESG/SRI, stocks, ETFs, options, mutual funds, fixed income, crypto) received a high score and companies with the smallest selection received a low score.
Ability to Build Custom Screens
We used a binary scale for this and gave brokers that allow users to build custom screens a score of 1, while brokers lacking this feature received a score of 0.
Ability to Screen Based on Technical Indicators
Brokers that give users the ability to screen based on technical indicators were given a score of 1, while brokers without this feature received a score of 0 (binary scale).
Ability to Screen Based on Fundamental Indicators
We used a binary scale and brokers that give users the ability to screen based on fundamental indicators were given a score of 1, while brokers without this feature received a score of 0.
Ability to Save Custom Screens
Via a binary scale, we gave brokers that allow users to save custom screens a score of 1, while brokers lacking this capability received a score of 0.
Ability to Turn Screen Results Into a Watchlist
Brokers that offer users the ability to turn screen results into a watchlist were given a score of 1, while brokers without this ability received a score of 0 (binary scale).
Trade Idea Generator Offered
Brokers that provide trade idea generators were given a score of 1, while brokers without this feature received a score of 0 (binary scale).
Daily Market Research Reports Offered
Brokers that provide users with daily market research reports were given a score of 1, while brokers without this item received a score of 0 (binary scale).
Available Chart Types
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the largest selection of chart types (line, bar, candle, vertex line, etc.) received a high score and companies with the smallest selection received a low score.
Access to Proprietary Research
We scored this item on a binary scale of 0 or 1. Companies that provide proprietary, in-house research received a 1, and companies without this feature received a 0.
Level of Access to Third Party Research
For this criteria, we scaled the responses (0.00, 0.50, 1.00) and awarded companies with free access to third party providers the highest score of 1, while companies that charge extra for this research were given a score of 0.50, and companies offering no third-party research at all were given the lowest possible score of 0.
Trading Technology
Having the right trading technology in place helps investors identify actionable market inefficiencies and high-probability trade ideas, all while being able to execute these trades in a manner that is efficient and fair.
This entire section accounts for 11.00% of the total weighted score in our evaluation.
Ability to Backtest Trading Strategies
Brokers that offer the ability to backtest trading strategies were given a score of 1, while brokers without this feature received a score of 0 (binary scale).
Ability to Route Orders
Brokers that offer the ability to route orders were given a score of 1, while brokers without this feature received a score of 0 (binary scale).
Available Platforms
For this criteria, we scaled the responses (0.00, 0.50, 1.00) and awarded companies with the widest selection of trading platforms (website portal, desktop, mobile app) the highest scores. Conversely, companies with the fewest platforms received the lowest scores.
Algorithmic Trading Availability
We scored this on a binary scale, giving brokers that provide algorithmic trading capabilities a score of 1 and companies that lack this feature a score of 0.
Algorithmic Trading Demo Account Availability
We scored this on a binary scale, giving brokers that provide an algorithmic trading demo account a score of 1, while companies that lack this feature received a score of 0.
Algorithmic Trading Order Types
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the largest selection of algorithmic trading order types (market, limit, stop limit, OCO, GTC, GTD, day, etc.) received a high score and companies with the smallest selection received a low score.
Backtest Data
We scored this on a binary scale, giving brokers that provide historical backtest data a score of 1, while companies that lack this information received a score of 0.
Ability to Automate Trading Strategies
Brokers that provide users a way to automate trading strategies were given a score of 1, while brokers lacking this item received a score of 0 (binary scale).
Average Payment for Order Flow (PFOF) per Share
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the lowest PFOF per share ($0) received a high score and companies with the highest PFOF ($0.755) received a low score.
Average Payment for Order Flow (PFOF) per Option Contract
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the lowest PFOF per option contract ($0) received a high score and companies with the highest PFOF ($0.60) received a low score.
Net Price Improvement per Share
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the best net price improvement per share received a high score and companies with the worst net price improvement per share received a low score.
Net Price Improvement per Options Contract
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the best net price improvement per options contract received a high score and companies with the worst net price improvement per options contract received a low score.
Range of Offerings
All of the brokers we reviewed offer customers a platform on which to trade stocks and ETFs, but that’s where most of the similarities end. In addition to these two popular asset classes, the best brokers also allow investors to place orders in mutual funds, fixed income, certificates of deposit (CDs), options, futures, currencies, and cryptocurrencies.
In addition, investors have the potential to invest with a global reach. However, you’ll find that these companies vary greatly in the global markets they allow you to access, as well as the countries in which they offer support. There’s also the question of whether a company allows you to make fractional share trades and fractional dividend reinvestments, and what types of accounts you’ll be permitted to open, such as individual brokerage accounts, individual retirement accounts (IRAs) Roth IRAs, 401(k)s, or something else.
This entire section accounts for 11.00% of the total weighted score in our evaluation.
Asset Classes Offered Across Website, Desktop Software, and Mobile Trading Platforms
We scored these items on a continuous scale of 0.00 to 1.00. Companies with larger selections of tradable and investable asset classes (stocks, mutual funds, ETFs, bonds, CDs, options, alternative investments) received a higher score and companies with smaller selections (stocks, ETFs, bonds, options) received lower scores.
Stocks on the ‘Easy to Borrow’ List
We scored this item on a continuous scale of 0.00 to 1.00. Companies with larger numbers of stocks on the “easy to borrow” list (21,332) received higher scores and companies with smaller or the smallest number (0) received lower scores.
Number of Legs Possible in an Equity Options Strategy
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the greatest number of option legs (6) received a high score and companies with the smallest number (1) received the lowest score.
International Exchanges Offered Across Website, Desktop Software, and Mobile Trading Platforms
We scored these items on a continuous scale of 0.00 to 1.00. Companies with the most international exchanges (93) received the highest score and companies with the fewest exchanges (0) received the lowest score.
Countries Available to Trade In
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the greatest access to international support (200 countries) received the highest score and companies with the fewest supported countries (1) received the lowest score.
Asset Classes Offered for Algorithmic Trading
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the largest selection of asset classes available for algorithmic trading (stocks, ETFs, options, futures, futures options, and Treasury products) received the highest score. Conversely, companies without this feature received a score of 0.
Number of Stocks Available for Algorithmic Trading
For this criteria, we scaled the responses (0.00, 0.25, 0.50, 0.75, 1.00) and awarded companies with the largest selection of stocks (no limitations) the highest scores. Companies without this feature received a score of 0.
Ability to Trade Fractional Shares of Stock and ETFs
For this criteria, we scaled the responses (0.00, 0.50, 1.00) and awarded companies that allow customers to buy and sell fractional shares of both stocks and ETFs the highest score of 1.00. Companies that allow fractional trading in just one of these two assets were given a score of 0.50, as were companies that only offer the ability to liquidate fractional shares. Finally, companies lacking fractional share trading in stocks or ETFs were given a 0.00.
Access to a Variety of Account Types
We scored this item on a continuous scale of 0.00 to 1.00. Companies with access to the largest variety of account types (individual brokerage account, IRA, Roth IRA, UTGMA, and more) received a high score and companies with the smallest selection (just individual brokerage accounts) received a low score.
Ability to Make Fractional Dividend Reinvestments
We scored this item on a binary scale. Brokers that provide users with the ability to make fractional dividend reinvestments were given a score of 1, while brokers without this item received a score of 0.
Platform Experience
Whether you’re a passive investor with a fairly hands-off approach to your investing or a more active trader who is constantly looking to speculate in daily market swings, there’s a broker that fits your needs. This section covers the critical features that will help make for the best experience when you are ready to place an order and set risk parameters around it.
This entire section accounts for 10.00% of the total weighted score in our evaluation.
Real-Time Stock Streaming on Trading Platform
We scored this item on a binary scale. Brokers that offer real-time stock streaming on each available trading platform were given a score of 1, while brokers without this capability received a score of 0.
Simultaneous Real-Time Stock Streaming on Multiple Platforms
We scored this item on a binary scale. Brokers that provide users with simultaneous real-time stock streaming on multiple platforms (desktop software, website portal, mobile app) were given a score of 1, while brokers without this functionality received a score of 0.
Ability to Select a Tax Lot Before Placing an Order Online
We scored this item on a binary scale. We gave companies with the ability to select a tax lot before placing an order a score of 1, while companies without this capability received a low score of 0.
Order Types Offered Across Website, Desktop Software, and Mobile Trading Platforms
We scored these items on a continuous scale of 0.00 to 1.00. Companies with the largest selection of order types offered (limit, market, stop, stop limit, MOC, LOC, MOO, LOO, trailing stop, and more) received a higher score and companies with the smallest selection (market, limit, stop, stop limit) received a lower score.
Additional Features Offered Across Website, Desktop Software, and Mobile Trading Platforms
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the largest selection of additional features offered (ability to stage orders for later entry, trade directly from the price chart, customize the platform, and customize the price chart) received a higher score and companies with the smallest selection of features (ability to customize price chart) received a lower score.
No Serious Platform Outages in the Past Four Years
We scored this item on a binary scale. Brokers with no record of any serious platform outages in the last four years, which is generally considered to be the average length of a business cycle, were given a score of 1. Conversely, brokers that have reported serious platform outages over this same period received a score of 0.
Costs
There are two different types of brokerage firms: full-service and discount. The differences between the two and the fees they charge are significant. So how much does a broker cost? Our research takes into account costs and fees that are typical of both to properly compare these companies directly to one another.
This entire section accounts for 10.00% of the total weighted score in our evaluation.
Inactivity Fees
We scored this item on a binary scale. Brokers that do not charge inactivity fees were given a score of 1, while brokers that do charge these fees received a score of 0.
Base Commission for Stocks and ETFs
We scored this item on a binary scale. Brokers that give users the option of having no base commissions on stocks and ETFs were given a score of 1, while brokers that lack this option received a score of 0.
Base Commission for Options
We scored this item on a binary scale. Brokers that don’t charge base commissions on options were given a score of 1, while brokers that charge a base commission received a score of 0.
Account Closure Fees
We scored this item on a binary scale. Brokers with no account closure fees were given a score of 1, while brokers with such fees received a score of 0.
Account Transfer Fees
We scored this item on a binary scale. Brokers with no transfer fees were given a score of 1, while brokers with these fees received a score of 0.
Wire Fees
We scored this item on a binary scale. Brokers that charge no wire fees were given a score of 1, while brokers with wire fees received a score of 0.
Check Fees
We scored this item on a binary scale. Brokers that do not charge any fees for writing checks were given a score of 1, while brokers that do charge for this service received a score of 0.
Broker-Assisted Trade Fees
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the lowest fees for placing broker-assisted trades ($0) received the highest score and companies with the highest fees ($45) received the lowest score.
Price per Futures Contract
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the lowest prices per futures contract ($0.55) received a high score and companies with the highest prices ($2.25) received a low score.
Options Cost per Contract
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the lowest costs per options contract ($0.00) received the highest score and companies with the highest costs ($1.25) received the lowest score.
Volume-Based Discounted Fees for Options Trading
We scored this item on a binary scale. Brokers that offer discounted fees on options trades upon meeting a certain threshold were given a score of 1, while brokers without this benefit received a score of 0.
Capped Fees for Options Trading
We scored this item on a binary scale. Brokers that capped fees on options trades upon meeting a certain threshold were given a score of 1, while brokers without this benefit received a score of 0.
Base Commission for Penny Stocks
We scored this item on a binary scale. Brokers that offer the option of having no base commissions on penny stocks were given a score of 1, while brokers that lack this option received a score of 0.
Restrictions on Trading Penny Stocks
We scored this item on a binary scale. Brokers that do not put volume or any other restrictions on penny stock trading were given a score of 1, while brokers that do impose restrictions received a score of 0.
Access to Penny Stock Trading
We scored this item on a binary scale. Brokers that do not restrict access to trading penny stocks on any platforms where other stocks can be traded were given a score of 1, while brokers that do restrict access on certain platforms received a score of 0.
No-Load Mutual Funds Offered
We scored this item on a binary scale. Brokers that offer no-load mutual funds were given a score of 1, while brokers without this product received a score of 0.
Recurring Investment Fees
We scored this item on a binary scale. Brokers with no recurring investment fees were given a score of 1, while brokers that do charge such fees received a score of 0.
Educational Material
Markets are complex, and trading and investing in them is no easy task. It’s essential to have an understanding of how markets work and how to use the countless tools and calculators available to grow your assets.
The best online brokers provide a wide range of educational material across several mediums, such as articles, videos, seminars, and webinars.
This entire section accounts for 9.00% of the total weighted score in our evaluation.
Types of Educational Materials Offered
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the largest selection of educational content (articles, videos, webinars, virtual learning environment, online topical events, live and on-demand webinars, in-platform education) received the highest score and companies with the smallest selection (just articles) received the lowest score.
Ability to Use Life Stage Planning Tools
We scored this item on a binary scale. Brokers that offer life stage planning tools were given a score of 1, while brokers without this feature received a score of 0.
Portfolio Analysis and Reports
To be a successful investor, there is so much more to monitoring your account than simply checking your balance from time to time. For example, you should have an understanding of whether you are over- or under-exposed to certain sectors, or if there are any major tax implications with your investments.
The availability of expert assistance in these matters is a service that not all brokers offer. Not only will the best online brokers provide you with the proper tools and services to help keep your account on the right track, but they’ll also allow you to sync your external accounts for a holistic view of your finances.
This entire section accounts for 9.00% of the total weighted score in our evaluation.
Real-Time Portfolio Reporting
We scored this item on a binary scale. Brokers that offer portfolio reports in real-time were given a score of 1, while brokers without this feature received a score of 0.
Portfolio Tracking Features Offered
We scored this item on a continuous scale of 0.00 to 1.00. Companies offering the largest selection of portfolio tracking features (a sector allocation monitor, a sector allocation interpreter that alerts users to being under or over exposed to certain sectors, ability to sync a user’s external accounts for consideration in his portfolio analysis) received a higher score and companies with the smallest selection (none) received a lower score.
Ability to Communicate With a Live, Licensed Broker
We scored this item on a binary scale. Brokers that provide users with the ability to communicate with a live, licensed financial advisor were given a score of 1, while brokers without this feature received a score of 0.
Ability to Communicate With a Live, Licensed Financial Advisor
We scored this item on a binary scale. Brokers that provide users with daily market research reports were given a score of 1, while brokers without this item received a score of 0.
Ability to Maintain Trading Journal
We scored this item on a binary scale. Brokers that provide users with the ability to maintain a trading journal were given a score of 1, while brokers without this item received a score of 0.
Mobile App Usability
The conversations we had with many of the companies during our live demonstrations confirmed that interest in mobile trading continues to grow. Most brokers have robust desktop platforms, but mobile trading platforms have become powerful tools that are loaded with features critical to investing and trading.
The best online brokers allow their mobile users to access the same tools and amenities available on their desktop apps and websites and at similar speeds.
This entire section accounts for 9.00% of the total weighted score in our evaluation.
Access to the Same Order Types as Desktop or Web-Based Platforms
We scored this item on a binary scale. Brokers that provide users with access to the same order types on mobile as the desktop or web platform version were given a score of 1, while brokers without this functionality received a score of 0.
Access to the Same Asset Classes as Desktop or Web-Based Platforms
We scored this item on a binary scale. Brokers that offer access to the same asset classes on mobile as the desktop or web platform version were given a score of 1, while brokers without this feature received a score of 0.
Drawing Tools Available in the Charting Functionality
We scored this item on a binary scale. Companies that provide users the ability to draw trend lines and other overlays on mobile app-based charts received a score of 1 while companies lacking this capability received a score of 0.
Customer Service
This category evaluates the services provided to customers when they need help with their account or trading experience. We scored this item on a continuous scale of 0.00 to 1.00. Companies with the largest selection of customer service options (email, live chat, in-person branch, phone, FAQs page, live broker) received a higher score and companies with the smallest selection received a lower score. This section accounts for 7.00% of the total weighted score in our evaluation.
Account Amenities
In this section, we look at the supplemental services that the brokerage offers other than standard trading and investing features. Services like interest earned on uninvested cash and retirement tools are key components when it comes to making both tactical and long-term investment decisions.
This entire section accounts for 6.00% of the total weighted score in our evaluation.
Portfolio Margin Available
We scored this item on a binary scale. Brokers that make portfolio margin available were given a score of 1, while brokers without this item received a score of 0.
Ability to Choose and Offer Shares Held Long to a Loan Program
We scored this item on a binary scale. Companies offering users the ability to choose and offer shares held long to a loan program received a score of 1 while companies lacking this feature received a score of 0.
Interest Earned on Uninvested Cash
We scored this item on a continuous scale of 0.00 to 1.00. Brokers that allow customers to earn the highest interest rate on uninvested cash (5.1%) were given the highest score, while brokers providing the lowest interest rate on cash balances (0%) received the lowest score.
Minimum Balance Required to Earn Interest on Uninvested Cash
We scored this item on a continuous scale of 0.00 to 1.00. Brokers that require the lowest account balance ($0) to earn interest on uninvested cash were given the highest score, while brokers requiring the highest balance ($100,000) received the lowest score.
Uninvested Cash Automatically Swept Into a Money Market Fund
We scored this item on a binary scale. We gave brokers that offer users the option to automatically sweep uninvested cash into a money market fund a score of 1, while brokers without this item received a score of 0.
Automatic Cash Sweep Frequency
For this criteria, we scaled the responses (0.00, 0.25, 0.50, 0.75, 1.00) and awarded companies with the most frequent sweep activity (daily) the highest scores. Conversely, companies with less frequent sweep activity received the lowest scores.
Deposit Requirement for Opening an IRA
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the lowest requirement for opening an IRA ($0) received a higher score and companies with the highest requirement ($10,000) received a lower score.
Deposit Requirement for Opening a Roth IRA
We scored this item on a continuous scale of 0.00 to 1.00. Companies with the lowest requirement for opening a Roth IRA ($0) received a higher score and companies with the highest requirement ($10,000) received a lower score.
Security
This category was evaluated based on the broker’s security features and the level of commitment the broker shows in keeping its clients’ sensitive information secure. While most of the brokers we reviewed offer biometric login procedures, that’s where the similarities end.
This entire section accounts for 5.00% of the total weighted score in our evaluation.
Two-Factor Authentication Login
For this criteria, we scaled the responses (0.33, 0.67, 1.00) and awarded companies offering two-factor authentication across the most platforms (website, desktop software, mobile app) the highest score of 1. Companies offering two-factor authentication across two platforms earned a score of 0.67. Companies providing this security measure on just one platform received a score of 0.33, while companies lacking this security measure on all platforms were given a score of 0.
Biometric Logins on Mobile App
We scored this item on a binary scale. Brokers that offer either fingerprint or face-scan-based biometric logins on the mobile app were given a score of 1, while brokers without this feature received a score of 0.
No Data Breaches in the Past Four Years
We scored this item on a binary scale. Brokers that did not suffer any data breaches in the past four years, which is generally considered to be the average length of a business cycle, were given a score of 1, while brokers that have experienced a serious data breach received a score of 0.
Articles That Use Our Methodology
The investment industry is always evolving, with new innovative trading tools and account amenities emerging. Online brokers and trading platforms are at the forefront of this dynamic landscape, which is why we’ve written extensively on the subject.
The research conducted and data collected to create this methodology have been used to compile the following list of recommendations:
- Best Online Brokers
- Best Options Trading Platforms
- Best Brokers for International Trading
- Best Investment Apps
- Best Day Trading Platforms
- Best Roth IRA Accounts
- Best Online Brokers for Beginners
- Best Discount Brokers
- The 6 Best IRA Accounts
- Best Brokers for ETFs
- Best Brokers for Penny Stocks
- Best Brokers for Crypto Trading
All Investopedia articles that review the online brokerage companies that make up our list of the best, such as Interactive Brokers and Fidelity, are based on the research, data, and grading process described in this methodology, along with subjective insights from our editors and industry experts.
Meet the Research Team!
Read the original article on Investopedia.
Are Indexed Universal Life Insurance Policies a Good Option or a Scam?
The decision to purchase life insurance often starts from a place of respectable motivations.
One of the main questions in the decision tree is something like this: Do you have children or a spouse who depends on your income and would suffer financial harm in the event of your death?
Many people buy life insurance looking to be fiscally responsible and to protect loved ones.
The problem is that some types of life insurance are exceedingly complex. And many of those offer high commissions to salespeople.
So well-intentioned folks can get lured into policies that are not in their best interest due to the incentivized marketing and sales practices of the insurance industry.
Clark recommends level-term life insurance policies for specific amounts of coverage. And with companies that are well-positioned financially in the long term.
Is Indexed Universal Life Insurance a Good Option or a Scam?
What about indexed universal life insurance? Is that an acceptable type of life insurance? Or is it the type that makes Clark flustered?
That’s what a listener recently asked Clark Howard.
Asked Albert in Mississippi: “I have recently seen tons of advertisements for Indexed Universal Life Insurance policies. I tried doing research into them, but I’m just met with the same barrage of advertisements and videos.
“Are they a scam or something to actually invest into?”
Universal life insurance is a form of whole life insurance. These policies include built-in cash value which earns interest based on the current market or minimum interest rate, whichever is greater. Universal life insurance has an investment element.
These are complicated products. You can delve deeper into indexed universal life insurance (IUL). For this article, we’ll focus on Clark’s opinion of the product.
“Universal life insurance is a con job on the American people. It is considered to be a legal product, but it is unadulterated garbage,” Clark says.
“This is a horrific product that is only pushed because of the enormous, humongous, extreme commissions that the agents earn selling them.”
The Downsides of Indexed Universal Life Insurance
Be wary of marketing or salespeople trying to convince you to pay for something that you don’t understand. Blind trust can harm you in that situation.
“The indexed universal life is the latest flavor that the insurance industry is pushing,” Clark says. “And the idea is, ‘What can possibly be better than this? You get the returns of a stock market index without the risk of losing all your money!’ That’s how it’s pitched.”
Downside protection — capping how much money your investments can lose in a given year — is that juicy piece of the puzzle designed to lure prospective customers.
Salespeople won’t emphasize the following negatives, which Clark is happy to underline:
- Stock market collar: “What they don’t tell you is you don’t get the return of the stock market. You only receive a portion of the return of the stock market in a good year.”
- No dividends: “You don’t get what is perhaps equally as important as the rise of the stock market over the years. You don’t get the dividends.”
- High fees: “What you get in return is ultra-high expenses in the indexed universal life.”
- Tax risk: “The tax treatment is questionable. With a universal life policy of any flavor, if the policy does not perform as expected, you can end up with a tax time bomb. And capital calls. Meaning you have to come up with big money. Or your policy can be wiped out.”
Keep Your Insurance and Investing Separate
Clark wants you to separate your investments from your insurance.
Insurance companies, banks and bank-affiliated brokerages are the three places Clark says you should never invest.
“The craziest thing of all is generally people looking at [universal life insurance] are not maxing out other tax-free ways of saving money. Not tax-advantaged, potentially, but tax-free,” Clark says.
“Like ultra-low cost Roth IRAs and employer-provided Roth 401(k)s. Even index funds in a regular investment account will usually outperform net of taxes what you would have in one of these junky universal life policies of various flavors.”
If you need life insurance to protect your family, Clark says, consider term life insurance rather than any type of whole life insurance.
“Because the only winner when you do that is the high-commission salesperson that conned you into buying the trash,” Clark says.
Final Thoughts
If an insurance person is aggressively selling you on any type of life insurance, chances are it’s a high-commission product that will benefit them, not you. Avoid mixing insurance and investing. And if you want to protect your family with life insurance, consider level-term life insurance instead.
The post Are Indexed Universal Life Insurance Policies a Good Option or a Scam? appeared first on Clark Howard.
Solana Foundation Says It Can Filter Through the Offensive Meme Coin Problem
Panelists at a BUIDL Asia summit said racist meme coins can be handled with a light touch.
U.S. trade in goods deficit widens to highest level in ten months in February
The numbers: The U.S. trade deficit in goods widened 1.5% to $91.8 billion in February, according to the Commerce Department’s advanced estimate released Friday. Economists polled by Econoday were looking for the deficit to widen slightly to a $90.6 billion deficit.
Warren Buffett spent more than $350 million to buy these stocks in the past week
Warren Buffett now owns about 30% of Liberty SiriusXM’s outstanding shares.
San Francisco’s performing arts scene takes on our love-hate relationship with tech
Recent productions of ‘Mere Mortals’ and ‘Big Data’ reflect the unease we feel with emerging technology
UK Judge Freezes Craig Wright Assets to Prevent Him Evading Court Costs
Judge James Mellor found earlier this month that Wright was not, as he’d claimed, Bitcoin inventor Satoshi Nakomoto