Risk of Policy Lapse for Levered IUL Strategies

I am trying to understand the risk of a policy lapse for levered IUL strategies. More specifically, what I am trying to understand is:

How often do IUL policies lapse? How about for levered IUL strategies that involve paying minimal premiums out of pocket? When IUL policies lapse, how significant are the tax ramifications?

For context, my (31M) father (64M) has become interested in a "levered IUL" strategy.

The "levered IUL" strategies I am referring to include Curtis Ray's "MPI" strategy and the "FlexMethod" — these stategies generally involve: taking out large IUL policies, paying one or a few premiums in the early years with cash, and then using policy loans to fund all or most of the subsequent premiums indefinitely. If all goes well, the arbitrage between the borrowing rate (interest rate on the policy loan) and the crediting rate (amount earned on the cash value) can drive eye-popping returns.

An example illustration might show that a 30-year old could put in $50k a year for the first 4 years, and then when they they turn 65 they could take out ~$500k a year to fund their retirement.

In transparency, I am no fan of permanent life insurance policies. So I am trying to understand if this strategy is simply suboptimal or actually quite risky.

Q1 above, I am trying to see if there are any studies or resources discussing how often regular IUL policies lapse and, ideally, any resources that discuss how a leveraged strategy might fare.

I understand "overloan riders" can be a mitigant to this situation, though they have costs and often don't kick in until age 75 or after a number of years. Further, I understand this would depend on the policy's structure, but a general sense of the drivers would be helpful.

And on Q2, I am try to understand what exactly is your taxable cost basis. If you use policy loans to pay for premiums, does that count towards your tax basis? If yes, then the tax ramifications of a lapse might not be too bad. If no, then the tax ramifications would be massive (if you've only paid in a few premiums out of pocket and then borrowed a ton for subsequent premiums, your ending loan balance would be massive relative to your cost casis).

Any help would be appreciated.

submitted by /u/StatusMeasurement713
[comments]