Don’t Buy an Indexed-Universal Life Policy Until You Read This

Brian ManderscheidAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

So-called “finfluencers” are preying on naïve investors, promising unrealistic returns while generating excessive commissions for themselves. Their bait is an indexed-universal life (IUL) policy. Read this to avoid making a costly mistake.

Mindlessly scrolling through social media is an experience that we are all familiar with, even if we might not admit it. If you are like most social media account owners, you see pictures of family and friends enjoying their lives, maybe some funny and adorable cat videos, and advertisements for products or services you do not need. You may have also seen videos posted by “financial advisors” pitching a miracle tax-free retirement vehicle offering “safe” 10%+ average annual returns without any downside. As the claims go, this mysterious vehicle was previously only available for the ultra-wealthy, such as Jeff Bezos or Elon Musk, but now is accessible by everyday folks like you and me.

What is even more strange is these advisors typically do not provide any legitimate information on what this vehicle is or what it is called. In fact, some will quote Internal Revenue Codes as the product name in a blatant attempt to misguide viewers to think this is a government-approved retirement plan. Commonly, these are pitched as a “section 7702 plan.” While this is a legitimate piece of the IRS code, it disguises what this vehicle truly is.

What is this tax-free retirement vehicle or section 7702 plan? It is a form of life insurance, an IUL policy.

IUL was created in 1997 and has been gradually gaining market share in the life insurance industry. When I got my life insurance license in 2006, there were mostly off-brand carriers offering IUL, and the big players stated they would never get involved. But most of those carriers, including the big names save a few holdouts, now offer IUL as part of their product portfolio.