Below is a transcript of the YouTube video that you can find on the LIFE180 YouTube channel. 

I’m going to be going through ChatGPT and what it has to say about index universal life. I’m going to show you what chat GPT has to say about IUL. I’ll give my breakdown, give my feedback, and in between each of the points, give my perspective of each point.

In the end, Chat GPT has given 5 areas it believes IUL is dangerous.  I am going to focus on those points.  If you want to learn more, be sure to check out my Indexed Universal Life Training Playlist on YouTube.

Here is the chat GPT script when I asked, “what are the dangers of indexed universal life”:

“Indexed universal life, IUL insurance policies have both potential benefits and certain risks or considerations.“
“Here are some of the dangers or potential drawbacks associated with IUL policies:”

1. Market Volatility:

“IUL policies are tied to the performance of an underlying stock market index. While this provides the potential for higher returns, it also exposes the policy’s cash value to market volatility. If the index performs poorly, the cash value growth may be limited or even result in a loss.”

All right, so my feedback on that is actually really positive on what ChatGPT has to say. I wasn’t sure how positive or not positive ChatGPT would be about IUL. The market volatility thing is something that most IUL agents position as one of the benefits of IUL. And because they say you can’t lose money due to market loss, while at the end of the day you can lose money due to market loss.

Here is the bottom line, if the policy is funded properly, the problem doesn’t happen until you start leveraging the cash value through policy loans.  While IUL agents will proclaim that, “ZERO IS YOUR HERO”, that doesn’t mean you can’t lose money in your IUL due to market volatility.  You may not be losing money in direct relation to the market loss, but make no mistake about it, you are losing money due to market loss.

In fact, in some cases, like when you are in retirement and have outstanding loan balances on your IUL due to the fact you have taken retirement income loans, a 0% market year can result in a net cash value loss of greater than 10% in your IUL.  That may not seem like much, but that problem can compound on you very quickly.

I have videos that show, in retirement, how you can actually lose 10% of your net cash value of your policy with just a 0% year. So in fact, there’s more risk in an IUL in some cases than there is actually in investing directly in the index itself. ISo it’s something to be concerned about, something that most people overlook. Most people downplay on the agent side. If you are considering buying an IUL for yourself, you really need to take this fact into consideration.

If you are interested in learning about this more, I’ve got a full illustration review right here that you can watch and that you can go through. And it explains the dangers and how you can lose money, especially during retirement, especially when you have policy loans out against these policies that will help you understand more.

2. The cap rates, participation rates, and the fees:

“It says that IUL policies often come with caps on the maximum percentage of the index gains that will be credited to the cash value of your policy. There may also be participation rates that determine the proportion of the index gains that will be credited.”

“Additionally, IUL policies tend to have higher fees compared to traditional whole life policies, which can reduce the overall potential growth, or overall growth potential.”

Here's my feedback on this, which I often discuss extensively. The cap rates, par rates, and fees within the policy are all accurate points. Interestingly, one of the most common arguments I encounter from IUL agents is that whole life insurance is more expensive than IUL. Even ChatGPT, one of the most advanced AI systems, acknowledges that indexed universal life is pricier than whole life insurance when considering the runaway fees. This isn't a coincidence.

This is because if you do enough digging and you get off social media and you stop listening to the hype of all these indexed universal life influencers, you'll realize that whole life insurance offers superior benefits throughout the life of the policy. It's essential to adopt a long-term perspective when making these decisions.

Now, in full transparency, IUL will have lower cost of insurance at the beginning of the policy. But if you’re buying cash value life insurance, the intention of buying the policy is for your entire life, for your whole life, that’s where you have to look at the actual fees. It’s not over the period of your first 10 years in the policy if you’re young, but over the extension of your entire life of the policy.

What do the fees look like in retirement? Because that’s when you’re going to lean on the policy most for tax-free income in retirement. You want to have it for the death benefit forever. You want to have access to this money during your entire life and you need to understand what the fees are later in your life. So that is number two and I am excited to see that Chat GPT and AI knows this about IUL.  It’s actually kind of a beautiful thing.

Now full transparency also, I hadn’t read these until now. I just literally did a query in chat GPT and I plugged it in and I wanted to read this being fully clear, fully authentic and being fully surprised so I can have an authentic response and I’m getting excited about what I am seeing.

All right, so the third danger ChatGPT has about index universal life is:

3. Complexity and lack of transparency:

“Understanding the various features, calculations, and limitations in an IUL policy can be challenging. The policy’s performance is influenced by factors such as crediting methods, index performance calculations, and policy expenses. This complexity can make it harder to evaluate the true long-term benefits and risks associated with the policy.”

All right, so this is one of my favorite things to talk about IUL.  The fact that it’s one of the most misrepresented financial products on the face of the earth because it is a highly complex financial tool that is sold as a very simplistic solution to a lot of people’s problems.

Trying to get people to view it as a rich man’s Roth or an alternative to a 401k, and trying to position it like it’s some safe solution to getting out of the government account like a 401k and qualified accounts, qualified plans.

The facts are, this is a highly risky product. Agents are not super transparent about what the fees and expenses are, how they work. They just show illustrations typically and make you believe that the policy will perform according to the illustration, “because that illustration is done on a conservative basis”, while the reality is it’s not done on a conservative basis at all.

Indeed, most illustrations indicate a probability of over 50% for underperforming compared to the showcased figures. This discrepancy motivated me to initiate the IUL challenge, aiming to demonstrate that even during the most remarkable bull market, IUL policies still fall short.

Despite the anticipated upside potential, the past decade, marked by the greatest bull run, should have showcased these policies outperforming their illustrations. However, I've extended a $2,000 challenge to any agent to prove otherwise, yet not a single agent has been able to meet it.

Once again, I care about what IUL’s do over the long run, not what they do in the next year or two, right? I’ve challenged people, I’ve given them an offer to give them $2,000 to just show me an illustration that has outperformed the original illustration that they sold it according to. Not one agent has been able to win the challenge yet, and it’s been over a year. So I’m doubling down on this, and this is why I create this content to educate people to do more research 

And once again, don’t just take my word for it. Do your own research and dig deeper, I’ve got a whole playlist that explains how index universal life works. So absolutely. I think the LIFE180 YouTube channel is one of the best education resources on the internet as far as understanding index universal life and at the same time I encourage you to go to other resources like LifeProductReview.com by Bobby Samuelson, another amazing resource that anybody can go to to learn about indexed universal life.

The fourth danger according to the chat GPT about IUL is:

4. The potential for underperformance:

“While IUL policies offer the potential for higher returns based on the market performance, there is no guarantee of achieving those returns. If the index performs poorly or experiences prolonged periods of low growth, the cash value accumulation may fall short of expectations.”

That’s why I talked about the IUL challenge just a second ago. The fact that one of the earlier dangers is the fact that the cap rates, the par rates, the fees inside of the policies can all be changed and they will be changed to your detriment as a policyholder.  History has shown that since IUL’s creation in 1997, they have underperformed their illustrated values when sold and that the fees and costs move in a way that does not benefit the policyholder.

I often say that IUL’s are still a financial experiment and if you look at the IULs that were designed initially in 1997 through 2009 when they became popularized due to the great recession, you will see that they have underperformed almost everytime. Then from 2009 to 2023, they have still underperformed.  It has been so bad that they have had to update illustration regulation for IUL 3 times in the past decade because of all the class action lawsuits.

If I'm considering where to invest my money, I prefer to place it where I have control over it, where the terms of the contract and the policy benefit me directly. That's why I favor whole life insurance. In contrast, with IUL, the fees and terms of the contract often benefit the insurance company, giving them control over my funds. It's akin to entrusting your money to a 401k and allowing the government to dictate its use until you reach a certain age.

While it's marketed as something distinct, in reality, the difference isn't significant. The main distinction lies in transferring control from the government to the insurance company. If you're comfortable with this arrangement, consider the experiences of traditional UL policyholders in the mid-90s.

5. Misaligned expectations:

“This is a big one. Some policyholders may have unrealistic expectations about the potential returns of an IUL policy considering a pure investment vehicle. It is important to understand that IUL policies primarily serve as life insurance products with a cash value component and the cash value growth is subject to various factors and limitations.”

I keep saying this is one of my favorites, I guess the Chats GPT did a pretty good job on this one because Misaligned expectations is a huge deal with IUL. This is one of the biggest problems.  I always say, whether it’s IUL or Dave Ramsey’s advice, one of the biggest challenges that I have in the personal financial space is the fact that most people don’t have expectations in alignment with reality for what is actually going to happen.

That’s one of the biggest things that I always try to focus on and teach our agents at Life 180 to be able to help people with this, to have pure expectations and to really understand how money works; what you’re gonna need to do, and it’s probably gonna be harder than you think it’s gonna be, but if you want to achieve the life that you wanna live and if you wanna be able to reverse engineer and design that life you want to live, you’re going to have to put more work into it.

I think one of the reasons that IUL has gotten so much traction, has gotten so much momentum in selling in the marketplace, has nothing to do with the fact that the product is good. It has everything to do with the fact that we got hundreds of thousands of agents out there selling it and because of the fact that these companies are getting around illustration regulation and the regulation AG 49B just got released, by the way, that was May 1st, 2023.

With that new regulation update, companies have already worked on workarounds on their illustration software, so they don’t have to reduce the rates, reduce the performance to the spirit of what the regulation was created for. If you look at the fact that these insurance companies are implicit in changing and trying to skirt around the regulatory environment, what happens is that it trickles down.

Most of the agents don’t do their research, they believe what they’re seeing from the insurance companies and they don’t have enough history in the market. I fell into this. When I was new into the industry, I sold IUL. For my first four and a half years in this business, I was a huge IUL advocate because I didn’t know what I didn’t know; I understand how agents fall into this trap.

Strive to truly understand how these products function and their impact on people. Evaluate your policy reviews consistently over a span of three, four, or five years. When you observe that these products are not performing as expected, compare the outcomes to the initial illustrations you designed. Recognize that they are not meeting the established standards.

Over time, especially in recent years, you will become increasingly aware of this discrepancy. It's crucial to acknowledge this realization and accept the responsibility that comes with it. Personally, I underwent this process, prompting me to shift my perspective. Consequently, I now strongly advocate for whole life insurance over indexed universal life insurance.

Here’s how chat GPT ends off this description. 

“It’s crucial to thoroughly research and understand the specific terms and conditions of an IUL policy before considering it as part of your financial strategy. Consulting with a qualified financial advisor who specializes in life insurance and understands the nuances of IUL policies can help you make an informed decision based on your individual circumstances and goals.” 

One of the things that’s important to understand there is you’ve got to work with an IUL agent who understands the nuances of these IUL policies and most agents don’t do that. It’s a sad, sad state of existence right now in this business. The fact that we have so many uneducated IUL agents that say they’re educated, that think they’re educated because they’re only educated on the positives of the IULs. They don’t understand the actual nuanced inner workings of how these things function.

Hopefully you found value in this article. I’m gonna do a little series on what Chat GPT thinks about life insurance as a whole. If you’re fascinated and interested in it don´t forget to visit my networks to take advantage of all my content.