Premium-Financed Indexed Universal Life Insurance Lawsuits
Brokers and insurance agents may market indexed universal life insurance policies as the best of all worlds. You are told that you protect your loved ones by providing a death benefit, while you grow your net worth at the same time. Many times these products are sold as “guaranteed income for life.”
While an IUL may make sense for some people, it comes with many hidden costs. Even though these costs should always be disclosed upfront, customers are often shocked when they do not see their cash value rising as it should. In some cases, brokers have either recommended an IUL as an unsuitable investment product, or they have failed to disclose all fees upfront.
If you have lost money because you have been sold a premium-financed indexed universal life insurance product that just does not make sense for you, Rikard & Protopapas can help you possibly recover financial compensation from your broker through a lawsuit. Contact our experienced litigators to begin your case.
What is an IUL and How Do They Work?
An IUL is a form of permanent life insurance. Unlike a term policy, which lasts for a number of years, an IUL lasts for the rest of your life, so long as you make the premium payments.
IULs have exploded in popularity in the last decade, not necessarily because they are a great financial product. Insurance companies make a large amount of money on IULs. There was once only a handful of companies doing business in this space. Now, there are dozens. IULs now hold roughly 25% of the life insurance market, measured by new annualized premiums.
There are two parts of an IUL:
- There is a death benefit that pays your beneficiaries when you die
- There is a cash value, which is akin to equity and becomes part of your net worth
The reason why an IUL is called an “indexed” product is because it is tied to the performance of a certain index. In many cases, that index is the S&P 500.
The insurance company will take your premiums (after they take a hefty array of fees) and invest it in some type of options that mirror the S&P. Your cash value grows if the stock market does well. Your cash value will drop if the market does not have a good year.
Just because the insurance says that they invest the money does not mean that you are an investor when you buy an IUL.
Let’s be completely clear about what an IUL is not. An IUL is not an investment product, no matter how much the salesperson likes to tell you that it is. However, salespeople have every incentive to tell you whatever is necessary to get you to put your money in an IUL.
The Company Makes a Lot of Money on IULs (Often at Your Expense)
Your broker is being paid very well to sell you an IUL. Because of all the fees that the insurance company charges, brokers are encouraged to push these products. In turn, a broker can earn commissions of up to 80% of the premium that you pay in the first year. Depending on the value of your policy, this can be thousands of dollars. The financial payday gives brokers an incentive to steer you to this product, regardless of whether it is right for you.
Over time, you may begin to realize how much worse off you would have been if you had bought term life insurance and invested the rest of the money. You may begin to learn exactly how much the insurance company has made off of you. Typically, they have taken the following from you:
- Premium loads, covering the expense to cover policy charges (including the agent’s commission); this fee could be charged on the front or back end
- Monthly charges that you pay for the first ten years to cover the death benefit
- Mortality charges to compensate the insurer for what they may lose from your death
- Expense charges that you pay over the life of the IUL
It is very hard to get a handle on the exact percentage of fees that you will pay. When you do an internet search, you will likely see many articles trying to sell you on the virtue of IULs, but they are hazy on the exact expenses, and they are biased in their numerical comparisons. What is certain is that you will take a very large hit in the first year.
IULs are usually most suitable for younger people, who are able to absorb the first-year hit of the product fees. These products may become competitive on fees over time, but it can take decades until an IUL is actually a lower-cost option.
Brokers and Marketing Representatives Do What They Can to Get You to Buy an IUL
Years ago, only a handful of carriers offered IUL products. Now, as more carriers are starting to see the financial benefits of selling these offerings, the market has become more saturated. More sellers mean more schemes, especially as some insurance companies and brokers try to get ahead in a lucrative market.
Perhaps the worst illegal practice associated with IULs are the false promises and rosy estimates that are attached to these products. The salesperson may pull out spreadsheets with very bullish forecasts that do not accurately portray your actual returns from IULs.
Why You Can Take a Financial Hit from Buying an IUL
IULs are far from the always-profitable product that you are sold on by your broker. You will do well in years when the stock market generates high returns. However, you could take a large hit in poor stock market years, like 2022.
If the stock market does poorly enough, the combination of fees and market losses may mean that you must pay even more premiums to maintain your policy. You may be forced to make a choice to pay much more or forfeit your policy. You could even lose the cash value that you have built up or the death benefit that your family was supposed to receive.
Some people are shocked when they get a bill for a higher premium that they cannot afford because they were not told that this was even a possibility. Nonetheless, the broker and insurance company always get paid.
Wrongful Practices Used to Sell IULs
With IULs, the fraud is almost always in the sales process. Here are some examples of illegal and potentially fraudulent practices associated with the sale of IULs:
- Deceptive sales presentations that fail to disclose the costs and risks associated with IULs
- Recommending that customers borrow money or take equity from their homes to purchase IULs
- Recommending IULs for older customers who would not live long enough to recoup the high front-end costs and may have to pay prohibitively high premiums
- Selling an IUL as an investment plan, as opposed to a life insurance policy with a cash value component that can vary based on an index’s return
- Mischaracterizing key terms of an IUL
- Including complex terms in an IUL and not fully explaining them to customers (or outright lying about them)
- Using dubious funding schemes, such as a “structured cash flow,” which is nothing more than a pension scam
In one recent case, Minnesota Life Insurance Company, and its independent marketing organization Shurwest, faced hundreds of millions of dollars of claims related to the sales conduct surrounding IULs and an associated Ponzi scheme.
At some point, you may review your account statement and realize that the IUL you bought is not performing up to your expectations. You may not even know what happened or why your IUL is underperforming.
We investigate instances of IUL fraud from companies such as:
- Pacific Life IUL
- Nationwide IUL
- World Financial Group IUL
You may receive a shockingly large bill for a premium that you cannot afford, which was much larger than you were paying before. By that point, the broker and insurance company have been handsomely paid and have figuratively “fled town.” You are then left to pick up the pieces of your financial future.
We Can Help Figure Out What Happened and Take Action
This is the point where the lawyers at Rikard & Protopapas can help you. We can make sense of what happened if your policy lapses and figure out how the broker or insurance company violated any one of a number of securities laws or regulations, including:
- Not properly making a suitability determination (or not even making one at all)
- Failure to disclose all fees upfront
- Making untrue statements in connection with the sale of an IUL
- Failure to properly supervise sales representatives
- Failure to follow the company’s own policies and procedures.
Contact an Attorney to Start an Indexed Universal Life Insurance Lawsuit
If you believe that you have been misled or defrauded by your broker, you must take legal action to recoup your losses. It is not always an easy case when the broker has their own attorneys to fight you at every step of the way. We can help you determine the best way to seek repayment for what you lost.
To speak with one of our experienced lawyers, you can send us a message online or call us today at (803)-805-7546. We work for you on a contingency basis, receiving a percentage of your financial recovery.