Life Solutions

Protect What Matters
Indexed Universal Life Doomed for Failure                                                            Part 7

Companies that sell IULs disclose all the risks before the consumer actually buys the product. The disclose in black and white the many things that can go wrong. The inform you that the cost of insurance can be outrageous as you get older and that the premiums can become astronomical. Of course, they don’t quite express it like that but, they disclose. It is mind bowling to think that even with all the disclosures that are presented, people still purchase IULs. I don’t understand why they do it, but I will share my thoughts as to why they do it.

 

  1. They don’t read the risks

  2. They don’t understand the implications of the risk

  3. Agent does not discuss the risks

  4. Agent does not point out where they can find the risks

 

Here is one of the disclosures that appears on the illustration paperwork that agents put together. It reads as follows:

 

“Your policy will not work exactly as shown on this document because the actual values in your policy will vary based on…” and them it goes through a list of reasons. Here are some of those reasons:

 

  • The amount of the premium payments you make - So, if the amount of premiums you make varies, then the illustration is useless. The numbers which were given to you are no longer valid because the premium amounts varied.

  • When you make the premium payments – If you don’t make your premium payments in a timely fashion, or if you miss any premium payments, the values on that illustration are worthless

  • The actual cost of insurance – This is a big one. The actual cost of insurance in the future is something that is unknown. Not even the insurance company knows what insurance is going to cost in the future. So, if the cost of insurance in the future is different than what appears on the illustration, again, it is worthless

  • Actual policy expenses – Another unknown. If the company’s expenses rise for whatever reason, the illustration is useless

  • Loan, withdrawals and other policy changes not shown in this illustration – So, if you need to take a loan, a withdrawal, or make other unforeseen changes, the illustration is of no use

  • Actual rate at which interest is credited to your policy – This is the big one. All values are based on the performance of the market. If the market does not perform exactly at the rate illustrated, even if it’s just for one year, the illustration is unreliable, worthless.

 

Really, the insurance company is telling you in black white “basically, this illustration is worthless, but we wish you well. It is the agent’s duty to at least tell you the following:

  • If you miss a payment you may lose all your underlying guarantees

  • Your cash value can be eroded as the cost of insurance rises if you don’t make your ongoing premium as the premium increases with your age

  • If you take income, and have a zero-growth year (the market performed negatively) your cash value is reduced by the income you took plus the cost and fees for that year

  • He/She should tell you all that can go wrong, and all that historically has gone wrong for others that have purchases ULs, VULs, and IULs.

 

Instead of disclosing and educating, most agents ignore sharing this information. They very sneakily jump through this information on the illustration hoping that you don’t notice and hoping that you don’t ask.

 

On the next section, I’m going to share 8 questions that you should ask before buying an IUL.