I spoke with the CEO and owner of a company yesterday who was uncomfortable with the idea being pitched by Nationwide insurance of using Indexed Universal Life Insurance as a way to insure him as a key man and amass a fortune in cash value as an executive bonus for his retirement. While an attractive goal, the agent missed or ignored the fact that his internet marketing company has, in his words, “fluctuating income – some years are amazing. Others, not so much”. She based her proposal on this year’s income and assumed that the $100,000 a year premium could always be there to shore up a product that is, at best, premium sensitive and dependent and at worst a complete failure at the first hint of under funding. “Some years are amazing. Others, not so much.”
But such is the direction our greedy industry represented by greedy agents and companies has taken. Indexed universal life insurance leads all other products in sales, not because it’s an amazing product but because agents misrepresent the down sides of the product and companies teach them how to dance around the subject and land those cases. The reason they misrepresent the product is that it doesn’t hold up to even a layman’s scrutiny (CEO above). They can’t speak honestly about the real worst case scenario because most of them don’t understand what it really is and the others who know what the worst case is don’t talk about it because they wouldn’t make sales and large commissions that way.
The life insurance industry can still address the core issue of planning for the future, compensating monetarily for a loss, but due to the low interest environment of the last 15+ years it can no longer lay claim to the moral nontaxable high ground. There was a time when whole life insurance held that position and had built in guarantees that agents were proud to show and boast about, but with low guaranteed interest rates and dividends declining, while at least more straight forward than IUL, it isn’t the have your cake and eat it too answer. The truth is that the days of predictable retirement planning are, well, not predictable any more and the use of life insurance as a cash cow retirement vehicle are over. There are plenty of agents that will take exception to my view of things, but there aren’t any that can prove it.
Bottom line. A wise guy once said “don’t use investments as life insurance and don’t use your life insurance as an investment”. Those thoughts have never been truer than now and more pointedly more true in the context of indexed universal life. If you have questions or have recently purchased or are considering purchasing indexed universal life, call or email me directly. My name is Ed Hinerman. Let’s talk.