Today, the Wall Street Journal reported on problems surfacing in connection with the sale of wildly popular Indexed Universal Life (IUL) insurance. According to the Journal, New York regulators have disclosed concerns about the sales practices of agents selling this type of insurance. Among other things, the regulators are concerned that the insurance industry’s commission-based sales force is using projections about future policy returns and performance that are misleading. Sadly, this is nothing new for the insurance industry that has a history of using flawed projections to make lucrative sales.
These Indexed Universal Life policies – similar to Equity Index Annuities – entice investors with the promise of participation in the stock market plue downside protection. The pitch is alluring, but from our perspective, investors need to stay focused on three things: 1. The insurance policy is actually a contract between you and a multi-billion dollar financial institution; 2. The insurance company has designed the contract so that it will profit from the money you pay it as part of the contract; and 3. The representative of the insurance company you are speaking with only gets paid if you enter into the contract with the insurance company.
No matter how nice your insurance agent appears to be, he or she is part of a system developed by the insurance industry to push you to buy products that will make money for the insurance company and the insurance salesperson regardless of whether the projections you rely on turn out to be true or not.