Indexed Universal Life (IULs) Policies first emerged on the insurance scene back in 1979, when stock market interest rates were high, and increasing. Basing returns on the performance of a stock market index, the better the stock market does, the higher the returns on an Indexed Universal Life policy. Which means, back in the 1980s, sellers of Indexed Universal Life policies were boasting interest return rates that went up to the double digits. Sales illustrations used to promote Indexed Universal Life policies to buyers were advertising double-digit interest rates that would continue into the future. However, those sales illustrations were misleading. Those high interest rates did not last and instead, caused buyers of Indexed Universal Life policies to lose their money. In response, reforms regarding Indexed Universal Life policies sales illustrations were implemented. Unfortunately, despite these reforms, sales illustrations today are still misleading.
Today, the market is at an all-time low so interest rates will also be low. Yet, sellers of Indexed Universal Life policies are still spouting double-digit interest rates. How are the sellers getting these numbers? Sellers look into past interest rates to calculate today’s interest rates, also known as “look-back” interest rates. By averaging historical interest rates, sellers can come up with enticingly high – but incorrect – interest rates to promote to potential buyers of Indexed Universal Life policies. The American Council of Life Insurers proposed a standardized look-back period of 25 years, which would bring rates back into the 80s, when the market was doing well. Except, the market is not doing well, making high interest rate figures incorrect. Recently, the New York Department of Financial Services launched an investigation into these misleading sales illustrations, believing the predicted figures to be too high.
Some sellers of Indexed Universal Life policies include Minnesota Life, Penn Mutual, Midland National Life, AXA Equitable Life, Lincoln Financial, Pacific Life, Transamerica Life, and John Hancock Life.
Potential buyers of Indexed Universal Life policies should be careful of trusting sales illustrations for Indexed Universal Life policies. As the old adage goes, “If it looks too good to be true, it probably is.” If you bought an Indexed Universal Life policy product and would like a free and confidential review of it, call 415-441-8669 or email info@evanslaw.com.
