Are Indexed Universal Life Insurance Companies Using False Advertising?

Indexed universal life insurance companies may be falsely advertising the returns they say policyholders can get. Learn about these policies and why consumers say they’ve been duped by insurance companies.

What Is an Indexed Universal Life Policy?

According to Investopedia, an Indexed Universal Life or IUL insurance policy is one that combines the benefits of life insurance with an investment account. While IUL policies come in many different shapes and forms, generally these types of policies will let the policyholder allocate cash value to an account, either fixed or based on an equity index.

An IUL insurance policy lets a policyholder purchase life insurance with a death benefit as well as allowing cash accumulation in an account, says Investopedia. These policies are not for everyone, however.

How Does an Indexed Universal Life Policy Work?

As noted above, there are many different types of these policies and they can be quite complicated, says Investopedia. Generally, when a policy holder pays their premium, the premium amount is added to the cash value of the IUL insurance policyaccount, after fees are deducted.

Investopedia notes that the funds contributed to IUL policies are not actually invested in the stock market. Instead, they are tied to equity indexes. Usually, the policy offers a guaranteed minimum fixed interest rate and indexes the policyholder can choose.

Policyholders make money when the indexes included in the policy increase. If the indexes do not increase or lose money, the policy holder’s cash account does not increase.

Benefits to IUL Insurance Policies

Investopedia points out the following benefits to these types of policies:

• Low premiums
• Policyholders accumulate cash in their accounts at a tax-deferred rate
• An untaxed death benefit that is not required to go through probate and not subject to income
• Reduced risk because cash is not directly invested in the stock market
• Policyholders can access the cash in their IUL policy at any time without penalty
• No limits on contributions
• Death benefit and cash amounts are flexible and controlled by the policyholder

IUL policies are marketed as the best of both worlds – the availability of a death benefit, as well as interest gained on investments derived from premiums. According to Smart Asset, IUL policies allow for growth, but also protect policyholders from loss.

Concerns about IUL Policies

However, IUL policies are not a good option for everyone, notes Investopedia. Because they are based on an equity index, policyholders may see no growth in their accounts depending on how the index is doing. In addition, those who can only put small amounts into the policy may not see any advantage over normal Universal Life Insurance. Finally, some insurance companies do not allow policyholders to participate at a 100% rate.

Additionally, experts warn that IUL policies are extremely complex and difficult for a regular consumer or even an insurance agent to understand. Further, some companies have been accused of falsely marketing their IUL policies.

How Can an IUL Insurance Policy Be Falsely Advertised?

Some IUL insurance policyholders say that they were told they would get a much better rate of return than they are experiencing.

Forbes reports that IUL policies have been the most profitable for insurance companies over the last decade; however, experts are now warning consumers to stay away.

“They are complex products sold with false promises and deceptive marketing,” Birny Birnbaum, director of the nonprofit Center for Economic Justice, told Forbes. “Stay away from them.”

There are a few ways IUL policies can be falsely advertised. Experts say that insurance companies have been using misleading rates of return to draw in customers. In addition, the use of terms like “uncapped” may dupe consumers into thinking the sky is the limit when it comes to the return on their cash account; however, in reality there is a cap and the rates of return are not high.

Further, experts say that insurance companies use misleading methods to calculate rates of return, for example, by using the rate of return on an index from decades ago when it was high. Similarly, the companies that sell these policies also use hypothetical projections about future rates of return, misleading consumers into thinking they will receive a higher rate of return than what is possible.

NuWire Investor notes that the fees that come out of the premiums before cash accumulates can offset any gains. Further, these fees, when applied to an equity index that is not gaining, can further drain the account and even require policyholders to pay additional premiums. Policyholders who refuse or cannot afford the additional premiums risk losing their account, says NuWire.

Experts warn that, unlike stockbrokers and certain financial planners, insurance agents and companies are also not obligated to work in the best interest of policyholders.

Which Indexed Universal Life Insurance Companies Are Suspected?

Certain insurance companies are under investigation for misleading consumers about their IUL insurance policies, including Pacific Life, Allianz, Lincoln Financial Group, and Minnesota Life.

Free Indexed Universal Life Policy Deceptive Marketing Class Action Lawsuit Evaluation

If you have purchased an IUL policy, you may be entitled to compensation by joining this Indexed Universal Life Insurance False Marketing lawsuit investigation.

Get a Free Case Evaluation

This article is not legal advice. It is presented
for informational purposes only.