What Makes Indexed Universal Life Insurance “Premium-Financed”?

30 May, 2024

You may have been told that you can build wealth and protect your family at the same time that you receive favorable tax treatment. On top of that, you may have been sold a product where you do not need to pay for all of this out of your own pocket, instead borrowing money to finance the purchase of an indexed universal life policy. These IUL policies are sold as “tax-free retirement income,” and with eye-popping returns on your premium investments.

However, you may have been shocked when you learned that premium-financed IUL policies are not in your best financial interest. When you have lost money due to misrepresentation and wrongful sales practices, you may be able to file a lawsuit to recoup your losses. Contact Rikard & Protopapas to learn more about your potential legal options.

How Premium-Financed Indexed Universal Life Insurance Policies Work

There are two ways to pay your premiums when you purchase an indexed universal life insurance policy.

Many purchasers will pay out of their pocket annually. They need to come up with premium payments that can be high in the beginning and will go higher every year as you age.

Some purchasers may borrow money from the bank to pay for their IUL policy premiums. The customers borrow money from the bank to pay premium payments. The bank loans the customer the money for the yearly premiums usually for 7-10 years of premium payments, and the customer is making interest payments to a bank on the loans used to fund the IUL policy. If you borrow money to pay for your life insurance, you could end up with increased leverage and a lot more risk. Customers do this because they are promised that the IUL policy will pay the customer more in interest than the interest rate they are paying the bank on the loan.

You are being led to believe that you can get life insurance coverage, a return on investment without spending your money from your pocket, and tax-free income. If it sounds too good to be true, it is.

These days, premium financed IULs may be even worse of a purchase in light of the high interest rate environment that we are currently in. Many customers may have borrowed money based on a variable interest rate, and they are now paying the price as the cost of capital is markedly higher, and their bank loan interest rates skyrocket.

High-net-worth individuals may feel comfortable borrowing money to pay for their life insurance premiums rather than paying them in cash. These strategies are used to obtain the promise of tax-free returns and create exemptions from estate taxes. In addition, they may keep more of their capital working elsewhere rather than using it on life insurance premiums.

With premium-financed IUL policies, you are being told that you can increase your returns by borrowing money, as opposed to paying for the premiums out of your own pocket.

Obviously, others have a financial incentive to sell you a premium-financed IUL. Both the provider and the marketer make a huge commission on these products, and they want to sell them to you in any way that they can. They may tell you what they think you want to hear about the risks and returns to get you to sign on the dotted line. The insurance companies also charge high policy charges on the policies. The only person not making money may be you.

Premium-Financed IULs Are Not Always Suitable for Investors

Premium-financed IUL policies are not a suitable investment for everyone. An insurance agent or financial advisor needs to review your financial situation closely to determine whether these policies meet all three prongs of the suitability test. If the borrower cannot meet the payments, they may need to surrender the policy and incur large charges. Your money may be better used elsewhere.

Purchasers can end up in the red when they borrow money to pay for life insurance premiums. If the policy does not perform as expected, the buyer can end up losing money. No matter what an insurance agent, advisor, or lender may have told you, premium-financed policies are not “free insurance.” You are taking definite risks when you borrow money to buy anything.

If an insurance agent or advisor sold you a premium-financed IUL, you may be able to file a claim against them.

You Must Receive Full and Accurate Disclosure About the Type of IUL You Buy

In many cases, the provider has put together an illustration that shows how your IUL may perform for you. There have been many lawsuits that have alleged that these illustrations are misleading in nature, and they do not always account for the fees that you pay. These illustrations often show incredibly high projected returns that may double, triple, quadruple, or return even higher returns on your policy premium payments. Be very careful.

Even though there are new standards that restrict some of what the providers may do in their illustrations, they are still being overly aggressive in what they portray to the public. While premium-financed IUL purchasers may be more sophisticated than the average customer, they may still fall victim to these unrealistic and inaccurate depictions of their returns.

You Can File a Premium-Financed IUL Lawsuit if You Have Lost Money

If you believe that you have been sold an IUL through deceptive marketing or you were sold an IUL that is unsuitable for you, you may be able to file a claim or lawsuit against the insurance agent, advisor or insurance company. These days, numerous IUL insurance companies and agents are being sued related to their marketing and sales practices.

Purchasers who have lost money have been successfully pursuing those who unlawfully profited at their expense. You may be able to file a claim depending on the circumstances of your case.

To find out if you are entitled to get your money back, you should contact an experienced investment fraud attorney and IUL attorney so they can review your case and explain whether you have a potential lawsuit. For any type of IUL that you have purchased, whether you have borrowed money to do so or paid from your own pocket, it is beneficial to have a legal review of your case to understand the scope of losses you can recover.

Contact a Premium-Financed IUL Lawyer Today

If you have lost money due to unscrupulous premium-financed IUL sales or misrepresentation of the policy’s performance, you may be able to fight back legally. The attorneys at Rikard & Protopapas work to help defrauded customers get their money back through claims and lawsuits. Our attorneys have handled hundreds of IUL lawsuits across the country and have recovered millions of dollars for victims of unsuitable IUL practices.

You can schedule a free initial consultation with one of our attorneys by sending us a message through our website or by calling us today at (803)-805-7546. You pay nothing unless you win your case.



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