Are IUL insurance plans a scam?

[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

[Joe Splitrock]

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.