At Risk Life we have been following the IUL growing pains and the moaning and groaning of clients who aren’t seeing the proof in the putting. In the financial adviser realm there is a saying, “Never use life insurance as an investment and never use an investment as life insurance.” Indexed Universal Life flies in the face of that advice with agents today reminding us of agents in the 80’s who claimed that all you had to do was buy life insurance and your future (not your family’s future) would be secure. Those days will never be far enough in the past when agents would show you assumptions that would make you a millionaire in 10 years for a measly little premium.
And now comes IUL. It’s a retirement vehicle. It is an ultimate banking vehicle. It’s a long term care vehicle. It almost doesn’t matter what your question is, if you’re talking to an IUL agent, IUL is the answer. Actuary Jason Konopik who has actually help structure many of the IUL products on the market today said in a recent article, “IUL is a non-guaranteed product, and as an actuary who has worked with the pricing actuaries at many carriers, I can guarantee you on thing: Insurance companies won’t lose money on a non-guaranteed product. What this means is that this carrier will make up for losses they are incurring…by lowering cap rates on their indexed crediting strategies.”
He goes on to say, “From time to time, life insurance companies come out with policy benefits that can significantly reduce an individual client’s risk by spreading that risk over all their customers. This isn’t one of those times! In today’s environment it is more important than ever that agents truly understand what they are selling. Otherwise you will be making promises to your clients that will never be realized.” Mr Konopik was speaking to the potential downside to variable loan rates (like this country shouldn’t cringe anytime variable loan rate is mentioned), but we believe the same truths that he brought to the table should be held up against the product as a whole and as he said that “agents should truly understand what they are selling”. When an actuary that has helped build these products is so aware of how they can be sold out of context, that should be an indicator that it isn’t all upside. There is risk.
Most IUL sales are made under the assumptive umbrella of high interest gains in cash value. The only guarantee in an IUL is usually a floor, basement floor, that keeps policy owners from hitting the negative column with their crediting choice. We couldn’t have said it better ourselves when Mr Klonopik said, “I can guarantee you one thing: Insurance companies won’t lose money on a non guaranteed product”. Companies can talk all day long about 8-13% interest, but they aren’t going to let it ruin their day when things go south. The don’t guarantee caps on crediting rates. They don’t guarantee interest gain any better than, if it’s as good as whole life insurance. The truth is that most IUL agents steer clear of the guarantee topic other than to say that there is a guaranteed floor. But they don’t and usually won’t show you what happens when you plug your plans into the policy at floor level.
We’ve been through this before and now the National Association of Insurance Commissioners, most of whom are too young to remember the devastation wrought in the 80’s by agents selling assumptions, are allowing the same faulty walls to be constructed again. Those are the same walls that fell apart when they had to fall back on the guarantees and there just isn’t any evidence that some change in construction has made this any safer for the consumer.
Should you be nervous about buying into an IUL product? We’re licensed to sell it and won’t. Anyone we talk to that has been tickled by the IUL feather gets the same advice. Make the agent talk in depth about guarantees. Make the agent illustrate your best case scenario with the IUL at guaranteed levels. Remember that 95% of all life insurance agents aren’t around when you renew your policy the first time. When you go over the fiscal cliff with your policy and all the plans and dreams it was supposed to help happen, the agent most likely won’t be holding your hand like Thelma and Louise.
If you have questions or concerns about an IUL you have or an IUL that you are considering, call or email us. We can help.
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