2020 0923 - Forbes - Sounding The Alarm On Indexed Universal Life Insurance - IUL

  • 2020 0923 - Forbes - Sounding The Alarm On Indexed Universal Life Insurance, by Ed Leefeldt  ---  [BonkNote]  ---  [link]
  • “Consumers should avoid IUL because the insurers and agents who sell the product have no obligation to work in the consumer’s best interest. Mix in massively complex products designed to juice illustrations with opaque and unaccountable features and you have the recipe for future financial disaster,” said Birnbaum in a July 2020 statement that warned consumers against buying IUL.
  • The American Council of Life Insurers (ACLI), which represents 280 companies in the insurance industry, admits that IUL is not for everyone. “But indexed universal life would not be increasing in popularity if millions of long-term planners and families were not finding the cost of owning the product to be a good value,” says ACLI spokesperson Jack Dolan.
  • Indexed universal life insurance is in the same class as other permanent life insurance policies, such as whole life insurance. This means that it won’t expire—the way term life insurance will—provided the premiums you’re paying and policy account values are enough to keep the policy in force.
  •  Steven Roth, president of Wealth Management International, an insurance analyst and litigation consultant.
    • “Policy values in IULs are depressed for many years due to high up-front charges and high surrender fees,” says Roth, adding that, “These typically last for more than 10 years after the policy was taken out.”
    • Roth was recently part of a class action suit against Prudential Insurance Co. involving overbilling and improperly lapsing universal life insurance policies.
    • He is working on another one against Pacific Life over deceptive sales practices concerning the earnings potential of indexed universal life insurance policies.
  • The ACLI’s Dolan says the size of the premium depends on the returns on the options in the policy. “The fact is, in a different (and better) economic environment, less in premiums would be paid than originally planned,” he notes. “Owners of this product must be aware of exactly how it works, because, unlike certain other types of life insurance, IULs have a fluctuating component to them.”

  • “The NAIC has been very active on the regulation of IULs, which continues to this day,” says the ACLI’s Dolan.

  • But not successfully, according to Birnbaum. “We defy any member of the Committee to comprehend and explain, so a purchaser of this product could understand how this product operates,” he says in a letter to the NAIC. “Regulators are not doing anything to stop the unfair practices,” he warns.