Do you have an Indexed Universal Life (IUL) life insurance policy? Are you getting the kind of increases in your account value that you saw in the marketing materials for the policy?
The basic idea of IUL policies is that you can allocate amounts from your cash value to an account based on an index, such as the S&P 500 or NASDAQ 100.
We’re investigating to see if insurance companies have been promising more than their IUL policies are likely to deliver.
How IULs Work: Insurance Plus Cash Value Gains
When you pay the premium for a universal life (UL) insurance policy, the insurance company subtracts the cost of insurance, plus certain fees or expenses, and puts the rest into the cash value of your account.
IULs let you allocate percentages of your cash value to two different kinds of accounts. One kind has a guaranteed fixed interest rate.
The other kind of account earns interest based on the gains of an index, for example, the S&P 500. The gains on an S&P 500-indexed account will match the gains in the S&P 500.
For example, if the S&P 500 rises by 10% in a particular year, then the interest you earn on your IUL S&P index account for that year will be 10% of the account’s cash value. If the S&P 500 falls instead, generally your account will not earn any interest.
There are different ways of calculating the interest, A “participation rate” may also be applied. In the above example, the participation rate is 100%, but it may also be 25% or 50%. In that case, the gains would be lower.
An article in Investopedia says, “IUL insurance policies are more volatile than fixed ULs, but they are less risky than variable UL insurance policies, because no money is actually invested in” the stocks or bonds making up that index fund.
Explaining IUL Policies
The Investopedia article notes, “IULs are considered advanced life insurance products in that they can be difficult to adequately explain and understand.” However, insurance companies still have the burden of offering explanations that are both understandable and realistic.
Some insurance companies, it seems, may be painting an overly-rosy picture of IULs.
Inadequate or False Marketing Practices
The following are suspected of inadequate or false marketing practices:
- Pacific Life
- Lincoln Financial Group
- Minnesota Life
However, other companies may also be giving consumer false hopes.
Were You Disappointed?
When you bought your IUL policy, what did the salespeople tell you about gains? What kind of illustrations of potential gains did they show you? Were you disappointed by your actual gains?
If someone gave you a false idea about your IUL policy, fill out the form on this page. Let us know what your experience was, so we can determine whether a class action is needed.