How to Know If Your Indexed Universal Life Policy Is Headed for Collapse—and What You Can Do About It
Indexed Universal Life (IUL) policies are marketed as powerful, tax-free retirement strategies. Agents promise:
- Market growth with no downside,
- Lifetime income after a few years of premium payments,
- And freedom from taxes on withdrawals.
But for thousands of policyholders, the reality has been devastating: lapsed coverage, surprise premium demands, exploding loan balances, and tax bills that come years after the agent disappears.
At RP Legal LLC, we’ve helped hundreds of clients who were told their IUL would fund their retirement. In truth, it was never designed to perform as promised. Below are seven warning signs your IUL policy may already be in trouble.
1. You Were Told to “Only Pay Premiums for 5 to 7 Years”
Why It’s a Red Flag
Most IUL illustrations are built on optimistic projections: steady market growth, high cap rates, and perfect loan behavior. But when those assumptions fall short, the policy requires more premium to survive—often years after you thought you were done paying.
What This Means
You may be underfunded. If the cash value can’t support the policy’s internal charges and loans, it will start eating itself from the inside.
2. You Started Taking “Tax-Free Income” Through Policy Loans
Why It’s a Red Flag
IULs don’t generate income—they offer policy loans. These loans accrue interest, reduce your cash value, and compound over time. If the loan interest outpaces your credited index returns, your policy is on a dangerous path.
What This Means
Unmonitored loans are the single biggest cause of policy lapse. If you’re taking income, you must review the policy annually.
3. You’re Receiving Unexpected Premium Notices or “Catch-Up” Bills
Why It’s a Red Flag
You were likely told the policy would “pay for itself.” But if the market underperforms or cap rates drop, the cash value can’t sustain itself. That forces the insurer to require additional premium payments—sometimes in large lump sums.
What This Means
The policy is no longer self-sustaining. You’re at risk of lapse if you don’t inject new funds.
4. Your Loan Balance Is Growing Every Year—Even If You’re Not Taking More Loans
Why It’s a Red Flag
Policy loans accrue interest. If you’re not actively repaying that interest (and most policyholders aren’t), your debt is growing—even while the cash value might be shrinking.
What This Means
If the loan balance exceeds the cash value, the policy lapses, and the IRS treats the entire loan as ordinary income—triggering a tax bill you may not be able to pay.
5. Your Agent Told You the Policy Was a “Private Roth” or Used 7702 as a Tax Shelter
Why It’s a Red Flag
Agents misuse Section 7702 of the tax code to make IULs sound like government-sanctioned tax shelters. In reality, 7702 is just a definition—it does not guarantee tax-free income or protect you from loan taxation.
What This Means
Your retirement plan may have been built on marketing—not legal or financial reality.
6. Your Policy’s Performance Isn’t Matching the Original Illustration
Why It’s a Red Flag
If your original illustration projected a 6.5% return and your current annual report shows much less, the whole structure may be compromised. IULs depend on performance just to stay alive.
What This Means
If you’re seeing lower returns, the policy will likely need more money—or it will begin to unwind.
7. You’re in Your 60s or 70s and the Policy’s Charges Are Increasing
Why It’s a Red Flag
The cost of insurance (COI) inside an IUL increases every year as you age. In later years, it becomes extremely expensive to keep the policy in force—especially if cash value has been depleted by loans.
What This Means
The policy is entering a phase where costs may outpace gains permanently. You’re at heightened risk of collapse.
What to Do If You See One or More of These Red Flags
If any of these signs apply to you, it’s time to act. At RP Legal LLC, we’ve recovered tens of millions of dollars for clients whose IULs were sold under misleading retirement narratives.
Policy Review
We will compare your original illustration to current performance and identify signs of underfunding, unsustainable loans, or collapse risk.
Legal Case Assessment
If you were misled about tax treatment, income guarantees, or premium requirements, you may have a valid claim against the agent, marketing firm, or insurance carrier.
Exit Strategy Planning
We’ll help you understand your options to unwind, restructure, or recover your investment before the tax burden hits.
Don’t Wait for the Policy to Collapse
Once an IUL lapses, the damage is often irreversible. A six-figure tax bill can arrive without warning. If your retirement depends on a policy that no longer looks like what you were promised, you need a team who knows how these products work—and how to hold insurers accountable.
RP Legal LLC is the national leader in IUL litigation. Let us help you protect what’s left and pursue what’s owed. Request your free review today.