Are IUL insurance plans a scam?
Dominic BaileyPro Member
Member since 2022 · 5 posts · 0 votesI 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 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.
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
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
I just want to say I really really really like this answer.
So when I deal with such-and-such "financial advisors", usually I dig up their past thru linked In or social media or any other stuff to check their credibility. Now I understand all the good answers that are coming from this thread LOL
I wouldn't call IUL's a scam. There are a few companies that work off of the multi-level marketing business model (World Financial Group for one), but scam wouldn't be the definition. If it is properly designed, it's a great tool and "piece of the pie".
I wouldn't use this if you simply need life insurance because you'd want to prioritize other financial needs first. But again, a piece of the pie.
There are many groups out there that have the opinion it's a scam, but that comes down to the agent and how it's sold to you. Discuss with multiple agents, planners, and advisors before making a decision.
I wouldn't call IUL's a scam. There are a few companies that work off of the multi-level marketing business model (World Financial Group for one), but scam wouldn't be the definition. If it is properly designed, it's a great tool and "piece of the pie".
I wouldn't use this if you simply need life insurance because you'd want to prioritize other financial needs first. But again, a piece of the pie.
There are many groups out there that have the opinion it's a scam, but that comes down to the agent and how it's sold to you. Discuss with multiple agents, planners, and advisors before making a decision.
i think a company like wfg that makes the IUL business a bad name, not just for mlm method but they're targeting low-income/low-financial-educated group with this stuff.
Completely agree! I was once targeted to be recruited and they have Super Bowl sized rings with their income level on there. I laughed and walked away. Very commission centric company.