Are IUL insurance plans a scam?
Dominic BaileyPro Member
Member since 2022 · 5 posts · 0 votesAre IUL insurance plans a scam?
Most Popular Reply
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
4yI wouldn't call it a scam, but they are fee heavy, including really high sales commissions. This is why "financial planners" spend most their energy selling insurance. I don't fault them for wanting to make money, but it skews their perspective on what is good for you. The marketing materials to sell these plans really oversell the benefit. They try to say "be your own bank" when in reality to access the cash value in your policy, two things need to happen:
1. You need to have cash value, which means making massive payments and paying massive fees.
2. You take a loan from the insurance company and use the cash value of your policy to secure the loan.
You are not the "bank" in this scenario, the insurance company is the bank. At the end of the day, insurance companies take your money and invest it in bonds, mortgage backed securities and the stock market. You can invest directly in all these vehicles without paying high fees and sales commissions. There can be some benefit to these plans for tax planning purposes, but that is mainly very high net worth individuals. If you are just starting out, save your cash for real estate deals or put the money directly into index funds. I know the financial planners (insurance sales people) will disagree, but selling insurance is how they put food on the table, so you can't blame them.
29 Replies
- Member since 2022 · 5 posts · 0 votes4y
@Eddie L. I'm sorry I'm very new to this. Could you be more specific
- Member since 2022 · 12 posts · 4 votes4y
They aren't a scam but it may or may not be the right product for you depending on your goals. I own an insurance brokerage in CA and have IULs myself. If you want life insurance protection for your spouse or other dependents and want a policy that also builds a cash value account that you can withdraw from down the road, it gives you this option. Typically these policies follow the S&P500 index with a floor, and cap rate (if SPY yields 15%, an IUL won't typically pay that due to the cap). If you take out a loan from the cash value account it affects how long your policy last so if you were sold the policy with the notion that you can take out money later without consequences, it's not that simple. However, if your policy performs better than expected over the next 10, 20, 40 years...you may be able to take out some cash value and still have it last "forever" if that's what you want. But you may also only need it to last until you're 65 or 80. They give you a lot of flexibility which is nice but you should make sure to review it every couple years to make sure it's still performing how you want it to.
- NY · Member since 2021 · 143 posts · 45 votes4y
Floor and cap is basically the min and max of how your cash value will be indexed to the for example SP500. For example with a 0% floor even if the SP500 drops 500% this year your cash value will have a 0% movement. On the contrary with a 5% cap, if the SP500 goes up 500% for the year your cash surrender value only goes up 5%. COI is the cost of insurance or the amount to maintain your policy. If 100% of your premiums goes to COI then this is all meaningless right? Not that it would... this is how I understand it so curious for the one you signed up for what are they for your policy
- Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes4yIUL can be great products, but like all great products, you need to find the right one. If you are looking for maximum overfunded IUL some insurance companies have way better products than others. Some IUL may be great for death benefit, but not for cash value accumulation. Some companies also have only recently entered the IUL market and don't have a long history and their illustration may be too optimistic. Some other companies are known to lower their cap rate more than others over the years. Also you need to find a good insurance agent who knows how to set them up properly to lower your cost and increase the long term growth.
Quote from @Dominic Bailey:
I recently signed up for iul. However now I'm hearing stories that they may be a scam or some type of pyramid scheme. Does anyone have any experience with them
I am using IUL myself in conjunction with my real estate investments and I recommend them to other investors. They are complex products and need to be understood fully as it is a long term game: you need to stay consistent and committed for a number of years. If you deviate from the game plan, the return will be poor and you can even have policy issues later on if you underfunded it. - 4yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
Its not a scam. The only thing that may be a pyramid scheme is how some of the agencies out there are more focused on recruiting agents, than writing new business. They try to get every new client to become an agent. Then they get that new agent to recruit even more new agents. Obviously the agent at the top are getting overrides on all the business the pyramid generates.
Who is the agency? and insurance company?
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes4y
There is a group going around that on boards independent sales people (MLM) to sell a heavy fee IUL product. Its probably the one you are referring to.
IULs really should be used by those who have 2-4M plus net worth because its not a great way to grow you money but diversify your holdings. Most people should start with an IBC using whole life.
- 4yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
Quote from @Lane Kawaoka:
There is a group going around that on boards independent sales people (MLM) to sell a heavy fee IUL product. Its probably the one you are referring to.
IULs really should be used by those who have 2-4M plus net worth because its not a great way to grow you money but diversify your holdings. Most people should start with an IBC using whole life.
The product sold by the "MLM" agencies are the same products used by most everyone. It is the policy design that matters. If you are interested in high death benefit, you'll get a product with little cash value and very high fees... that death benefit costs money. However, if you want a product geared toward private banking, the exact same product can be designed for minimum death benefit and maximum cash value.
Your idea that it should be used by those with $2-4M net worth is just nonsense. Wealth is relative. The Double Play, i.e. leveraging the cash value of a maximum over-funded life insurance policy to invest in real estate, is a way to build wealth faster than simply investing directly with your own cash. EVERYONE can benefit from this. It is the easiest and best way to get to that $2-4M net worth you mention.
Regarding Whole Life vs IUL: for two policies that are designed exactly the same, an IUL will outperform a whole life over time. The idea that it is riskier or that the cost of insurance will cause the policy to lapse is pure nonsense. We are talking about maximum over-funded policies that are obviously maximum over-funded and have way more cash value than they'll need to cover the cost of insurance.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes4y
I wouldn't call it a scam, but they are fee heavy, including really high sales commissions. This is why "financial planners" spend most their energy selling insurance. I don't fault them for wanting to make money, but it skews their perspective on what is good for you. The marketing materials to sell these plans really oversell the benefit. They try to say "be your own bank" when in reality to access the cash value in your policy, two things need to happen:
1. You need to have cash value, which means making massive payments and paying massive fees.
2. You take a loan from the insurance company and use the cash value of your policy to secure the loan.
You are not the "bank" in this scenario, the insurance company is the bank. At the end of the day, insurance companies take your money and invest it in bonds, mortgage backed securities and the stock market. You can invest directly in all these vehicles without paying high fees and sales commissions. There can be some benefit to these plans for tax planning purposes, but that is mainly very high net worth individuals. If you are just starting out, save your cash for real estate deals or put the money directly into index funds. I know the financial planners (insurance sales people) will disagree, but selling insurance is how they put food on the table, so you can't blame them.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes4y
Not a scam or pyramid scheme in the way you are thinking, but probably not the best use of disposable income for the frugal investor looking to optimize their ROI.
Some probably need the forced savings aspect. Better than blowing the money on material crap I guess.
- Rental Property Investor · St. Louis, MO · Member since 2022 · 125 posts · 124 votes3yYes, it is absolutely a scam. Here is everything you need to know about an IUL policy that your financial advisor won’t tell you.
Quote from @Dominic Bailey:
I recently signed up for iul. However now I'm hearing stories that they may be a scam or some type of pyramid scheme. Does anyone have any experience with them
https://www.personalfinanceclu... - 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Quote from @Account Closed:
Yes, it is absolutely a scam. Here is everything you need to know about an IUL policy that your financial advisor won’t tell you.Quote from @Dominic Bailey:
I recently signed up for iul. However now I'm hearing stories that they may be a scam or some type of pyramid scheme. Does anyone have any experience with them
https://www.personalfinanceclu...GREAT article. Another point is whenever I see someone self describing themselves as a financial advisor, or something similar, I am very interested in a couple of things. First, exactly what is their level of experience, education and what designations if any do they hold? I will often find that they have 4 year college degrees in animal husbandry, have taken 2 online courses in financial analysis, and hold an insurance salesman’s license. IMO these people are far from qualified to advise anyone on finances. Secondly, I want to know how these people are compensated. Again, IMO, if someone is an “advisor”, then their advice should be unbiased by monetary incentives. So, they should be paid the same no matter what product the client invests in. This is accomplished by either a flat fee for financial advice, or a percentage of “assets under management”. If the “advisor” is paid a commission for recommending a financial product, then the advisor is NOT an advisor, they are a SALESPERSON. In other words someone possessing an insurance sale persons license and compensated based on volume of insurance product sales, can not possibly offer unbiased advice, even if they had the knowledge, education and experience to offer it.
So, there are two problems. First, the “advisor” in question does not possess the know;edge, education and experience to offer proper and meaningful advice; second they’re compensated on the sale of one product type, so they’ll “advise” the purchase of that product whether or not it fits the investor’s needs.
Then there is actually a third issue. The higher the cost of the insurance product via fees is for the buyer, the more money the “advisor” earns as commission.
Here’s my advise, and I am qualified to offer financial advice by both education and experience, and I receive no compensation so my incentive isn’t to sell a product
1. If you need insurance buy the lowest cost term insurance you can find by a well rated company
2. Consider ROTH retirement products and fund them to the fullest
3. When investing in financial instruments seek out the lowest cost providers, such as Vanguard for index funds
4. Make real estate part of even most of your financial portfolio
5. After funding a conservative yet comfortable lifestyle, save. and invest all you can
6. Buy your home. Period. Forget the rent vs buy nonsense. The benefits of ownership are HUGE - 3yJon KellyPro MemberInvestor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
@Dominic Bailey you should've asked this question before signing up for one
- 3yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
Quote from @Account Closed:
Yes, it is absolutely a scam. Here is everything you need to know about an IUL policy that your financial advisor won’t tell you.Quote from @Dominic Bailey:
I recently signed up for iul. However now I'm hearing stories that they may be a scam or some type of pyramid scheme. Does anyone have any experience with them
https://www.personalfinanceclu...That article is comparing apples and oranges. Pure garbage. He's showing numbers for a policy that is designed for death benefit. Anyone saving for retirement or leveraging the cash value to invest in real estate would be using a maximum over-funded policy design. They are not the same. Most people want to get as much death benefit for the premium as they can. As a real estate investor, I want to do the opposite. I want as little death benefit as possible so that the cash value is maximized.
- Rental Property Investor · St. Louis, MO · Member since 2022 · 125 posts · 124 votes3y
Quote from @Thomas Rutkowski:
Quote from @Account Closed:
Yes, it is absolutely a scam. Here is everything you need to know about an IUL policy that your financial advisor won’t tell you.Quote from @Dominic Bailey:
I recently signed up for iul. However now I'm hearing stories that they may be a scam or some type of pyramid scheme. Does anyone have any experience with them
https://www.personalfinanceclu...That article is comparing apples and oranges. Pure garbage. He's showing numbers for a policy that is designed for death benefit. Anyone saving for retirement or leveraging the cash value to invest in real estate would be using a maximum over-funded policy design. They are not the same. Most people want to get as much death benefit for the premium as they can. As a real estate investor, I want to do the opposite. I want as little death benefit as possible so that the cash value is maximized.
Sounds like you sell these garbage investments and call it financial advising. Funny how the majority of people who think this is a good investment are the ones who get commissions for selling them. The fees are extremely high for both strategies you are comparing. Want to know why? They are the same investment - Indexed Universal Life Insurance. A Roth IRA with Vanguard charges only 0.03% fees annually. The numbers don't lie, the people selling these policies do!
- Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes3y
Quote from @Account Closed:
Sounds like you sell these garbage investments and call it financial advising. Funny how the majority of people who think this is a good investment are the ones who get commissions for selling them. The fees are extremely high for both strategies you are comparing. Want to know why? They are the same investment - Indexed Universal Life Insurance. A Roth IRA with Vanguard charges only 0.03% fees annually. The numbers don't lie, the people selling these policies do!
You may or may not want to use these kind of products in your own investment structure, but calling them garbage is showing that you don't understand what they are. Please educate yourself before making this kind of broad statement, you are just making yourself look like a fool. There are many investors in this forum, including myself, who are successfully using overfunded permanent life insurances in our investment flow. They are complex products and need a good execution plan to make them perform properly. But when you do, these are excellent financial products that are increasing your return while providing tax free, asset protected, and secure growth. Are these very specifically designed life insurance contracts to be used instead of other investment? Absolutely not, they are to be used simultaneously with them to enhance their return.
- Dallas, TX · Member since 2019 · 32 posts · 202 votes3y
Talk to @Thomas Rutkowski - He's posted here and knows A TON about it... definitely one of the masters of the trade as far as designing the right policy for you.
- Rental Property Investor · St. Louis, MO · Member since 2022 · 125 posts · 124 votes3y
Quote from @Mike S.:
Quote from @Account Closed:
Sounds like you sell these garbage investments and call it financial advising. Funny how the majority of people who think this is a good investment are the ones who get commissions for selling them. The fees are extremely high for both strategies you are comparing. Want to know why? They are the same investment - Indexed Universal Life Insurance. A Roth IRA with Vanguard charges only 0.03% fees annually. The numbers don't lie, the people selling these policies do!
You may or may not want to use these kind of products in your own investment structure, but calling them garbage is showing that you don't understand what they are. Please educate yourself before making this kind of broad statement, you are just making yourself look like a fool. There are many investors in this forum, including myself, who are successfully using overfunded permanent life insurances in our investment flow. They are complex products and need a good execution plan to make them perform properly. But when you do, these are excellent financial products that are increasing your return while providing tax free, asset protected, and secure growth. Are these very specifically designed life insurance contracts to be used instead of other investment? Absolutely not, they are to be used simultaneously with them to enhance their return.
I know how they work and I understand them well. My previous financial advisor sold me on this being a good investment and tax savings. I applied and got the packet with the tables, same as the article I posted. I was two signatures away from making a huge financial mistake that would cost me hundreds of thousands of dollars for the rest of my life, or cancel and lose everything, but I researched and found out everything they failed to inform me of.
Maybe it is working for you now, I sincerely hope it continues to. But for people with other options, this is not a good retirement investment. The article explains it all and you can’t argue those facts. - Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes3yObviously not as the policy in your post is not what we are talking about.
Quote from @Account Closed:
I know how they work and I understand them well. My previous financial advisor sold me on this being a good investment and tax savings. I applied and got the packet with the tables, same as the article I posted.
It's like saying it is stupid to use leverage to buy real estate. I got a quote from a short money lender at a 13% APR. When everybody else is talking about an FHA loan at 3%... Both of them are loans but are build differently for different purposes. - 3yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
Quote from @Account Closed:
Quote from @Mike S.:
Quote from @Account Closed:
Sounds like you sell these garbage investments and call it financial advising. Funny how the majority of people who think this is a good investment are the ones who get commissions for selling them. The fees are extremely high for both strategies you are comparing. Want to know why? They are the same investment - Indexed Universal Life Insurance. A Roth IRA with Vanguard charges only 0.03% fees annually. The numbers don't lie, the people selling these policies do!
You may or may not want to use these kind of products in your own investment structure, but calling them garbage is showing that you don't understand what they are. Please educate yourself before making this kind of broad statement, you are just making yourself look like a fool. There are many investors in this forum, including myself, who are successfully using overfunded permanent life insurances in our investment flow. They are complex products and need a good execution plan to make them perform properly. But when you do, these are excellent financial products that are increasing your return while providing tax free, asset protected, and secure growth. Are these very specifically designed life insurance contracts to be used instead of other investment? Absolutely not, they are to be used simultaneously with them to enhance their return.
I know how they work and I understand them well. My previous financial advisor sold me on this being a good investment and tax savings. I applied and got the packet with the tables, same as the article I posted. I was two signatures away from making a huge financial mistake that would cost me hundreds of thousands of dollars for the rest of my life, or cancel and lose everything, but I researched and found out everything they failed to inform me of.
Maybe it is working for you now, I sincerely hope it continues to. But for people with other options, this is not a good retirement investment. The article explains it all and you can’t argue those facts.The article is showing numbers for a policy designed for maximum death benefit, not cash value or retirement income. It is not comparable.
Your only argument is that I must be lying because I'm an agent. Have your facts straight before you come online resorting to Ad Hominem attacks.
- 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Quote from @Thomas Rutkowski:
Quote from @Account Closed:
Quote from @Mike S.:
Quote from @Account Closed:
Sounds like you sell these garbage investments and call it financial advising. Funny how the majority of people who think this is a good investment are the ones who get commissions for selling them. The fees are extremely high for both strategies you are comparing. Want to know why? They are the same investment - Indexed Universal Life Insurance. A Roth IRA with Vanguard charges only 0.03% fees annually. The numbers don't lie, the people selling these policies do!
You may or may not want to use these kind of products in your own investment structure, but calling them garbage is showing that you don't understand what they are. Please educate yourself before making this kind of broad statement, you are just making yourself look like a fool. There are many investors in this forum, including myself, who are successfully using overfunded permanent life insurances in our investment flow. They are complex products and need a good execution plan to make them perform properly. But when you do, these are excellent financial products that are increasing your return while providing tax free, asset protected, and secure growth. Are these very specifically designed life insurance contracts to be used instead of other investment? Absolutely not, they are to be used simultaneously with them to enhance their return.
I know how they work and I understand them well. My previous financial advisor sold me on this being a good investment and tax savings. I applied and got the packet with the tables, same as the article I posted. I was two signatures away from making a huge financial mistake that would cost me hundreds of thousands of dollars for the rest of my life, or cancel and lose everything, but I researched and found out everything they failed to inform me of.
Maybe it is working for you now, I sincerely hope it continues to. But for people with other options, this is not a good retirement investment. The article explains it all and you can’t argue those facts.The article is showing numbers for a policy designed for maximum death benefit, not cash value or retirement income. It is not comparable.
Your only argument is that I must be lying because I'm an agent. Have your facts straight before you come online resorting to Ad Hominem attacks.
Maybe he thinks you’re lying because you disguise the fact that you’re an insurance salesman by calling yourself a financial advisor. We expect a financial advisor to have and provide unbiased opinions and advice about what and which financial products are right for our situation. Being compensated based on sales commission for selling a particular product is not being an “advisor” - it’s being a SALESMAN. Man up and admit what it is you do upfront….stop hiding behind an “advisor” facade when you’re compensated by commission on insurance product sales.
- Insurance Agent · all 50 states · Member since 2022 · 184 posts · 122 votes3y
This whole thread has turned into a he said she said batch of attacks. From my perspective everyone gets paid on commissions.
You do work, you get paid. The amount of work that you do dictates the amount of payment you receive in commissions. The Financial advisors you are referring to as having been educated all get paid commissions, the day traders get bonuses based on how much money they are able to bring into their perspective firms every year, they make somewhere between 1-2% of a clients total book and they get paid for every trade that they make "for their client" for the life time that the client remains with them. Lenders get paid commissions based on the loans that they sell. The mechanic that fixes your vehicle gets paid commission for the "fix" that gets you back on the road when your car breaks down.
Lets all stop acting like no one should get paid to do a good job. Cash Value life insurance has a place, just like a Roth has a place, Just like buying stocks, bonds, and notes. They all have and do similar things just a little bit differently with varying degrees of risk.
Personally I like insurance. but that doesn't mean that I don't have and use other types of investments. Think of the old adage "Don't put all your eggs in one basket"
- Rental Property Investor · St. Louis, MO · Member since 2022 · 125 posts · 124 votes3y
When you are a trusted advisor for someone’s finances, it is unethical to push a certain type of policy on them just because it’s your source of earned commission and not the best option for their financial situation. I don’t care how much “work” you put into it, you are biased and not doing it with the client’s best interest in mind. That is way different then paying for a tire to be fixed or purchasing home owners insurance. You know up front what the people selling those do.
- Insurance Agent · all 50 states · Member since 2022 · 184 posts · 122 votes3y
Quote from @Account Closed:
When you are a trusted advisor for someone’s finances, it is unethical to push a certain type of policy on them just because it’s your source of earned commission and not the best option for their financial situation. I don’t care how much “work” you put into it, you are biased and not doing it with the client’s best interest in mind. That is way different then paying for a tire to be fixed or purchasing home owners insurance. You know up front what the people selling those do.
I have been in the automotive industry for most of my life and I can tell you with 100% certainty that there are more dishonest mechanics costing you thousands of dollars in unneeded vehicle maintenance and repairs (especially from the "Dealers") than insurance salesmen are costing you in misrepresented life insurance.
But to each his own, I am not in any way trying to sell you something that you clearly don't want. I don't sell anything to anyone that they don't want and don't need or wont benefit from. but hey maybe I am the only one.
Side not of ethicalness, if your insurance agent did something unethical report them to the state insurance board, and sue them. every agent/ agency has to carry Errors and Omissions insurance. If the agent screws up that much they aren't going to be an insurance agent for very long.
- Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes3y
Quote from @Account Closed:
When you are a trusted advisor for someone’s finances, it is unethical to push a certain type of policy on them just because it’s your source of earned commission and not the best option for their financial situation. I don’t care how much “work” you put into it, you are biased and not doing it with the client’s best interest in mind. That is way different then paying for a tire to be fixed or purchasing home owners insurance. You know up front what the people selling those do.
Do you know that the agent is making less commission with these optimized policies than with a standard policy?
Do you believe that 'financial advisors' who are selling only wall street products where they are making a lot of commission are also ethical when they are telling you that you should not invest in real estate?
Hopping that financial advisors have an unbiased opinion is complete utopia. Look at all the industry uproar when the administration tried to force them to become fiduciary...
Even fiduciary ones are here to educate you on the products they know. They don't offer all products, but only some. They are here to offer you a comprehensive strategy that make sense to them. You are still the final decision maker.
@Thomas Rutkowski has always been upfront on this forum and on his website he is specialized in life insurance product. As an agent he can sell you these products but he also offers advice for hire without sale. His website has plenty of free information on how to use a specific type of life insurance with real estate investment in mind. That is financial advice.
Again you may not want to use these products for your own portfolio and that is perfectly fine. But because it does not make sense to your situation, does not mean it will not for someone else.
Every time someone is paid for a service, it is a sale. So everyone is a salesman per your definition and should not use any other title at all. So you should not call yourself a broker but a salesman.
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