The forthcoming article represents a transcript derived from the LIFE180 YouTube channel's video content.

In all of my conversations with people on the internet, including platforms like YouTube, Facebook, and Instagram, regarding the various strategies for leveraging whole life insurance or indexed universal life, I've encountered numerous misconceptions and falsehoods about index universal life.

Many individuals selling index universal life either lack a comprehensive understanding of the product (A) or have received improper education, leading them to promote it in ways that it was not designed for (B).

If you don't understand my background, I used to be the head of business development for one of the top indexed universal life carriers in the country.  I stopped selling IUL because of my conversations with the people who designed the product, because of my conversations with people on the corporate team, and because of my understanding about what the purpose of an indexed universal life policy is from the insurance company perspective.

I know that from a marketing perspective, IUL looks really fantastic on the consumer side with more attractive returns, better performance, and more income during retirement.  I am aware it is a product that is sold on the idea of “upside potential and downside protection”.  The major problem is, that’s not how it truly works.

In this article, I'll expose the four major lies used by IUL agents in their sales pitches that misrepresent the true nature of indexed universal life insurance.

The First Lie

The initial lie perpetuated by many Indexed Universal Life agents is that the guaranteed column holds no significance. Here's the truth.

What they say is that you have the guaranteed column and the non-guaranteed illustrated column. The non-guaranteed illustrated column typically is based on an illustration rate in the range of 6.5%, 6.4%, or something of that nature. 

They often promote the idea of having both upside potential and downside protection. They explain that if the market performs well, there's a cap (let's say 13%), and if the market exceeds that cap, you won't benefit from those extra gains. On the flip side, they emphasize the downside protection, highlighting that if the market drops by, let's say, 20%, your account won't suffer losses because of a 0% floor.

They often argue that negative years in the market won't persist for extended periods, so the guaranteed column will never be a significant factor to consider.

The guaranteed column's performance is influenced by more than just market fluctuations. Regardless of the benchmark index an IUL company uses, whether it's the Russell 2000, the S&P 500, the Dow Jones Industrial Average, or another custom index, various internal factors come into play. These include internal fees, expenses, insurance costs, cap rate fluctuations, participation rate changes, spread charges, and other variables that can affect the policy's performance, including the guaranteed column.

Here's what many people tend to overlook. During my time in my Fortune 1000 job and discussions with policy designers, I learned two key reasons why life insurance companies heavily market indexed universal life:

Risk Shifting: IUL shifts the risks from the life insurance company to the insured.

Profit Center: It serves as a more significant profit center for the insurance company.

The company I was associated with had been primarily focused on whole life insurance for 150 years. However, it made a significant shift to become a dominant player in the indexed universal life (IUL) market, even surpassing other carriers in IUL policy sales.

But why this shift? The answer lies in risk mitigation for the insurance company. IUL policies allow the insurance company to avoid the same level of guarantees they had to meet with their whole life policies. Essentially, it lessens the insurance company's responsibility while increasing their profits. From the company's perspective, this shift is good business, but it may not necessarily benefit the policyholders, in my opinion.

Let's apply some common sense here. IUL companies provide sales contracts that offer commissions ranging from 140% to 160% for high-performing insurance producers. I understand that some of you reading this might be life insurance agents, while others are consumers considering the purchase of an IUL policy. Were you aware that top contracts for whole life policies typically cap commissions at 99% with most major carriers? (There are a couple of carriers that may go up to the 120% range for exceptionally high-performing agents, but even then, it's still 20-40% less than IUL contracts.)

Let's approach the situation from a practical standpoint. How could an insurance company offer more flexibility, more upside potential, and downside protection, all while paying the sales agent a much higher commission? The answer is, they can't. It always involves a trade-off, and the smoke-and-mirrors conversation that downplays the importance of guarantees is one of the greatest half-truths IUL agents use to sell to unsuspecting consumers. If you find yourself buying into that sales pitch, if you think it makes sense, well, I've got a bridge in Brooklyn I can sell you because it doesn't hold up to logical scrutiny whatsoever.

Understand that the guaranteed column on the indexed universal life illustration truly accounts for the guarantee, considering potential increases in your policy's administration costs, insurance costs, and even market performance fluctuations. It also factors in various variables that you and even your life insurance agent may not fully comprehend.

The most significant concern I have is the claim that you shouldn't worry about the guaranteed column because it hasn't come into play for a very long time. They say, "This company has been around for 150 years, and they've never had to do that." Well, that's a misleading story as well because even though the company, like the one I worked for, has a history dating back to 1852, they've only been involved in indexed universal life since the late 90s, which is roughly just over two decades. And during that time, the market has generally performed well. There have been a few short downturns, but we're currently coming off a significant bull market run.

Many people are understandably concerned about the state of the economy. It's crucial to recognize that for insurance companies with substantial guarantees to uphold, their actions can impact policyholders. If a life insurance company, for instance, has investments in their general account and is responsible for backing guaranteed products, they might face challenges if they can't achieve the necessary returns in the market and the fixed income markets. Especially if interest rates remain at historically low levels, which seems likely, they will have to establish additional profit centers.

These additional profit centers can often come at the expense of policyholders, especially those with index universal life insurance policies. To compensate for the lack of returns in other investments in their general account, insurance companies might resort to raising insurance costs, increasing administrative fees, and implementing various other measures. Consequently, individuals who are currently purchasing index universal life policies could, in my view, end up bearing the burden of supporting the guarantees made to policyholders with whole life policies, assuming the company offers both types of policies.

The Second Lie

The second issue I want to address isn't necessarily a blatant lie, but rather a misleading aspect of indexed universal life insurance sales presentations. It revolves around the assumptions made in the illustrated column, particularly when policies are illustrated at unrealistically high rates like 6.4%.

These illustrations often depict a beautiful picture of compounding growth and the idea that your money will always be compounding. However, this concept is far from reality. The only guarantee I can provide regarding an indexed universal life illustration is that the numbers you see year after year will never match up. Once you move beyond the first year, regardless of what happens in the market, the actual performance won't align with the illustrations, making it incredibly challenging to plan effectively when you lack clarity about how much money will be there.

I see this as a significant concern because many individuals tend to overemphasize the potential in that illustrated column, the growth, the opportunities, and the promised cash flow. However, the reality is often far from these exaggerated expectations. In my experience, and I've personally reviewed hundreds of these policies and met with numerous policyholders, they rarely live up to the illustrated projections, and more often than not, these policies end up disappointing those who put their trust in them.

I recently created a video exposing Doug Andrew regarding this issue. He's currently involved in a class action lawsuit with 66,000 of his clients who purchased Indexed Universal Life policies structured by him. Despite his claims of being one of the best in the world at this, these policies rarely perform as illustrated. They might look fantastic on paper, but they rarely achieve those performance rates in reality.

It's crucial to manage your expectations properly. You cannot solely rely on the "always be compounding" concept, thinking that you'll never experience down years. Even if you have an average return of 6.4%, a down year will still impact you. You may not see gains, but you'll still have to deal with administrative fees and insurance costs, so it's not truly a zero-risk situation.

The insurance costs and administrative fees will nibble away at the capital you've accumulated. Furthermore, during downturns in the market, if the insurance company needs to generate more revenue, they'll increase your administrative and insurance costs. It's not a question of if, but when it will happen. If you anticipate rising taxes and prolonged low interest rates, you should be aware that these changes are on the horizon.

You must fully comprehend all the moving parts and functions within these policies. Realize that the only guarantee when looking at an IUL policy illustration, as you navigate the process of purchasing one, is that the illustration will not align with reality.

The Third Lie

The third misleading claim that many agents make revolves around the guaranteed income for life feature of an IUL policy. Here's the situation: Nowadays, most IUL policies offer a component called a LIBOR or Lifetime Income Benefit Rider. What many agents, including some working for companies aggressively promoting IULs, will tell you is that your money can grow within these policies.

Then, when you reach retirement age, you can activate this rider, and it will supposedly guarantee you a substantial income for the rest of your life. But here's the issue: the Lifetime Income Benefit Rider is contingent on the illustrated amount.

The problem is, it'll show your money accumulating, and that rider will display a 10% or more annualized return, which would be fantastic if it were true. However, it doesn't work that way. This rider's effectiveness is entirely dependent on the amount of money you have in your policy when you reach retirement age. So, if your policy encounters problems, underperforms, or doesn't align with its illustrated projections (which, by the way, it almost certainly won't), you're going to face issues.

Once again, let's look at the case of Doug Andrews, who's facing a lawsuit from 66,000 people for these very reasons. There are others out there, like Curtis Ray, who are likely to face similar issues because their assumptions and sales tactics don't align with the actual capabilities of the product. Don't get me wrong; it's fantastic marketing. If I didn't have the knowledge I do, I might buy into it too. It sounds great and makes perfect sense, but the reality is quite different.

It may look great on the surface if you don't have the full story and you're simply enticed by market performance and potential returns. What baffles me is how these agents often disregard the variables and ignore the guaranteed aspects of the policy. I receive calls every day from people facing issues with their policies. The craziest part is that some individuals are trying to get their money back just a few years into their policies.

Insurance companies tend to argue that it's primarily an insurance product, and if you haven't structured it correctly or worked with someone who truly comprehends its intricacies, you might end up disappointed. You invest your money into these policies, but after two or three years, they might not perform as expected based on how they were marketed to you. When you approach the insurance company for a refund or some resolution, they're likely to remind you that you purchased an insurance product, and it wasn't designed for the performance you were hoping for. Unfortunately, I've spoken to people who have found themselves in this situation, so I strongly advise you to exercise caution. This leads me to the fourth lie.

The Fourth Lie

The fourth lie is that IUL is a more capable, beneficial, efficient, and effective product to use for Infinite Banking. I don't use the term Infinite Banking because I believe there's some math behind it that doesn't quite add up or doesn't tell the whole story. That's why we advocate for a strategy we call the End Asset, which is essentially similar to Infinite Banking but involves using whole life insurance instead of an indexed universal life policy.

This is simply brilliant marketing by indexed universal life agents. Keep in mind that these agents can sell both whole life and indexed universal life. However, I think they opt for indexed universal life because the commissions are higher, or maybe they genuinely believe in what they've been selling.

I promise you, if you delve into the mathematics, if you examine the actual internal fees and the insurance company's ability to modify your expenses within the policy each year as you age and as insurance costs rise, you'll see a different picture. Consider this: every year, the insurance charges for your indexed universal life policy become more expensive as you grow older. It's an inherent part of the policy structure. Indexed universal life products are designed to counterbalance this by ensuring more cash accumulates within the policy, thus absorbing the rising costs.

The issue arises when the policy fails to perform as initially illustrated. As you age, the natural increase in insurance costs becomes a concern. Moreover, when the insurance company decides to escalate the actual rates of your insurance charges, it exacerbates the problem. This compounds the issue, resulting in significantly higher insurance expenses. Consequently, your insurance policy can spiral out of control, leaving you with unexpected financial challenges and undermining the retirement income you had counted on. It's a troublesome situation.

For the context of debunking the lie about IUL being a great banking alternative, it's important to understand how this misconception is perpetuated. Advocates of IUL often tout its numerous benefits, but it's crucial to clarify that your insurance policy should not serve as an investment. If someone is positioning life insurance as an investment, they are providing you with incorrect information. Life insurance fundamentally serves as protection, not as an investment vehicle.

From a financial institution perspective, life insurance companies are exceptionally secure and can be likened to fortresses of wealth. I firmly believe that a well-structured life insurance policy should form a foundational component of everyone's financial plan.

I firmly believe that a well-structured whole life insurance policy is the only way to ensure that your desired outcomes will materialize according to your timeline, regardless of whether you're present to witness them. This component can serve as an excellent means to build your rainy day fund, create an opportunity fund, or save for investments in crypto, stocks, real estate, or any other endeavor. 

In essence, the key takeaway here is that if you're inclined to venture into day trading, real estate, cryptocurrency, business investments, or any other pursuit, those avenues are where you should be assuming risk and seeking returns.

I'm a big believer that taking risks is essential to building wealth. However, these risks should not be associated with your insurance policy. The more variables you introduce, the greater the risk. It's crucial to comprehend that leveraging an indexed universal life policy for banking purposes only exacerbates the problem. A whole life insurance policy is a better fit in this regard because it involves placing your funds into an account with a 100% guarantee, offering predictability and clarity to your financial operations.

You can't effectively manage something if you don't understand the underlying metrics. Trying to manage the metrics of an IUL on an annual basis is practically impossible. In contrast, with a whole life insurance policy, you have predictability and stability. Therefore, from a banking perspective, it's a clear-cut choice: never, under any circumstances, use an IUL. Nelson Nash, the creator of the concept, would likely be dismayed to see how people have distorted and misused the strategy within indexed universal life policies. Don't fall for those who claim otherwise.

Anyway, I hope that explanation makes sense and proves helpful. If this is your first time here and you found value in this content, please consider sharing it. I genuinely enjoy creating this material. If you have any questions or comments, feel free to drop them below. I try to engage with almost every comment.

If you're an insurance agent or someone looking to explore life insurance in your financial planning, stay tuned because I have a lot more content coming up that will benefit both agents and consumers alike. In any case, I wish you all a blessed and inspirational day, and I look forward to seeing you again soon.