IUL Fees Explained: How Their Structure Can Hurt You

27 May, 2024

Chances are you have been sold an indexed universal life insurance (IUL) policy based on the premise that it can help build your wealth or provide “tax-free income” to you. You may have even been told that you can be “your own banker” with this product.

However, you may soon learn that the only people who “make bank” are the IUL provider and the insurance agent and marketer who sold you the policy.

IUL fees are both sneaky and excessive. If you believe that an insurance agent or financial advisor misrepresented their fees with an IUL, or they have structured a product in an unsuitable way, you may be able to file a claim or lawsuit for financial compensation. Contact the attorneys at Rikard & Protopapas today to learn about your legal rights.

You Pay at All Points When You Own the Policy

To understand why an IUL may not necessarily be the best purchase for you, it is necessary to understand the fee schedule and how the charges work.

There are fees that are paid at multiple points of the IUL policy. You pay money upfront when you purchase the policy, each month while you have it, and if you ever surrender it. The effect is that you could end up with far less money than you put in, and the fees and premiums paid may even put you in the red if you surrender your policy.

In fact, it is very hard to find information online about exactly how these work in connection with an IUL. Providers do not want you to know this information because then you may not think that an IUL is the best fit for you. These IUL policies are incredibly complex, and many agents and advisors are counting on you to be confused.

Types of Fees in an IUL

Premium expense charges

The policy premiums are paid to buy life insurance and pay the insurance company’s internal “fees.” The insurance company is not going to foot this bill themselves, so they pass it along to you.

In most cases, this expense is covered as an upfront charge, known as a premium load. While you may not know it, this load can be a large proportion of the total sales price of the policy.

Providers may charge you a 5 to 8% premium load upfront. This is an upfront expense that cannot be recovered, no matter what.

Your insurance agent that you sold you the policy will also receive a large commission from your initial premium paid to the insurance company. Those commissions can sometimes be as high as %100 of the first year’s “target premium.”

Coverage charges

Everyone seems to be getting paid when you purchase an IUL policy, yet you are the one who has to pay for it. The agent who sold you the policy gets a large commission payment. Any other marketers who helped the insurance agent may also get paid from the premiums that you are paying to the IUL insurance company.

To be clear, you are the one who is footing the bill. The insurance company will assess you for a coverage charge to pay for marketing and distribution expenses.

Administrative charges

There are expenses that are associated with an IUL’s administration. The IUL insurance company will automatically deduct a certain percentage of the premium payment to cover these expenses. This expense is known as the administration charge.

The expense covers things like mailing statements and customer service accessibility. You would think that your premium should pay for this, and the insurance company should cover this expense. However, they do not hesitate to pass charges along to you.

Life insurance charges

An IUL is marketed as both an investment product and a life insurance policy. There is a certain percentage of your premium payment that goes to cover the life insurance costs. How much you pay depends on a number of factors, including your age and health.

Different providers will calculate the life insurance charges in varying matters. You may not have much transparency about how your provider is determining the amount that goes towards life insurance. These charges increase each year as you get older. This is why most of these products are not suitable for customers who are in or reaching retirement age. They are just too expensive.

Surrender charges

Where the IUL provider really gets you is if you try to surrender the policy early. IUL fees may go up over time when you can least afford the policy. It is very difficult to make your annual premium payments, especially when you may be earning less money or trying to otherwise save for retirement.

If you decide later on that you cannot maintain the policy, or you do not wish to do so, you will take a heavy hit from the provider. While the surrender charges may decrease over time, the first ten years of surrender charges can be incredibly high. Surrender charges are often punitive and sneaky, and they may eat much of the cash value that you have built. In the first few years, the surrender charge may be larger than the premiums you have paid, meaning your policy has a cash value of -0-.

Lawsuits or Arbitration Claims for IUL Sales Abuses

In many cases, the insurance agent or advisor will gloss over the fees that you have to pay.

They may present you with an illustration of the returns without telling you how the exorbitant amount of money that you must pay the IUL provider affects those returns. In other cases, the profit and income illustrations are often before fees and do not reflect your actual performance based on what you are actually paying or how the index crediting is working.

You may have a legal cause of action against either an insurance agent or advisor if you have been charged excessive fees in connection with an IUL or sold an unsuitable IUL policy. If an insurance agent or advisor sold you an unsuitable investment, or they misrepresented fees or how the tax-free income works, you could file an IUL lawsuit against them to potentially recover your money and investment.

Contact an IUL Lawsuit Attorney Today

The attorneys at Rikard & Protopapas have recovered millions of dollars on behalf of clients who are the victims of misconduct by financial professionals. We have litigated hundreds of IUL lawsuits. When you speak to us, we can review your case and let you know whether you have a potential claim or a lawsuit.

Schedule a free initial consultation with one of our knowledgeable investment fraud attorneys.

To speak with a lawyer, you can message us through our website, or you can call us today at (803)-805-7546.



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