Has a financial advisor or insurance firm sold you an IUL that turned out not to provide the promised returns or to have hidden fees or requirements? If you’ve put significant wealth into an IUL based on false or misleading promises, you may have a legal claim or the right to join an IUL class action to pursue financial recovery and accountability from negligent advisors or for an IUL scam. Contact RP Legal LLC today for an initial case evaluation to discuss your situation and learn more about your legal rights. We have over a decade of experience and a proven track record that includes millions of dollars recovered for our clients.
What Are IULs?
An IUL, or indexed universal life insurance, is a type of policy that combines two components: a cash value component and a death benefit. With IULs, the money in the policyholder’s cash value account earns interest, usually by tracking a stock market index selected by the insurance company. Many IULs offer interest rate guarantees that limit a policyholder’s losses but also cap their potential gains. When a policyholder makes a premium payment for their IUL, a portion of the premium goes to the cost of insurance based on the insured’s life to fund the death benefit, some of the premium goes to pay administrative fees, and the remainder of the premium goes to the policyholder’s cash value. Policyholders get to decide the percentage of money allocated to their fixed and indexed accounts.
Many IULs afford policyholders flexibility with premiums, allowing them to underpay or skip premiums once the policy value grows enough to cover premiums. Policyholders may also have the right to borrow against the cash value accumulated in the policy, although the insurance company can deduct unpaid loan amounts from the death benefit when the insured passes away.
Common Areas of Misconduct
Financial advisors and insurance companies may engage in misconduct by selling IULs to clients or customers whose financial or investment goals and needs do not align with the limitations, risks, and complexities of IULs. Advisor or firm misconduct can take different forms, such as:
- Breaches of fiduciary duties, including the duties of loyalty and good faith
- Broker negligence in recommending an unsuitable IUL product
- Financial firm’s failure to supervise registered representatives
- Misrepresentations regarding the benefits, risks, or complexities of IULs
Examples of financial firm/advisor or insurance company misconduct that can lead to the sale of IULs to clients for whom these products may not suit their needs and goals include:
- Recommending IULs to Older Clients – IULs may not suit the financial needs of older individuals since withdrawing money from an IUL that includes investment gains before the policy matures can trigger tax liabilities.
- Deceptive Marketing Practices – Financial firms and insurers may engage in deceptive marketing of IULs, pitching them to prospective customers as an alternative to traditional investment plans without explaining their limitations and downsides compared to traditional investing.
- Charging Excessive Fees – Insurers may charge exorbitant administrative fees that can severely limit or negate the interest earned on IULs.
- Misleading Representations That Overestimate Returns – Firms may exaggerate the returns that IULs can provide, often by failing to disclose rate caps that follow the rate floors that purportedly provide downside protection.
- Multi-Level Marketing (MLM) IUL Sales Practices – Some firms that sell IULs use multi-level marketing sales practices, recruiting customers to recruit other people in their networks to also market IULs.
- Fraudulent Practices (e.g., Pyramid Schemes) – Some IUL marketing practices may operate as mere pyramid schemes, with the organization making money primarily through the recruitment of new customers or members rather than through the management of legitimate financial instruments.
Some of the common advertising phrases or promises that financial advisors or insurance providers use to sell IULs to customers, including those for whom IULs do not serve their investment and financial planning needs and goals, include:
- “Tax-Free Retirement Income” – This marketing claim tries to convince clients that an IUL can offer a retirement investment vehicle similar to a Roth IRA or a pension, allowing a client to invest money via their premiums. However, claims like these ignore the risks of IULs, including loan defaults, policy lapses due to nonpayment of premiums, bankruptcy of the insurance company, and rising costs of insurance that may result in unexpected increases in premiums. Furthermore, this type of representation improperly pitches IULs as a guaranteed stream of income, which they may not provide based on the performance of index funds.
- “Be Your Own Bank” – Firms or advisors may sell IULs based on the concept of borrowing against the cash portion of the policy, using those borrowed funds to make other wealth-building investments. However, advisors or firms may fail to advise clients that borrowing against an IUL can reduce the death benefit if the client does not repay the loan. This type of representation also simplifies the concept of infinite banking by overlooking the effect of costs and fees on borrowing money.
- “No Downside Market Risk” – Advisors or firms may emphasize the rate floor guarantee offered by many IULs while failing to disclose that such floors also come with a rate cap that can limit a client’s upside. Furthermore, failing to disclose fees and costs on IULs can hide the potential for losses.
- “Indexed Growth with No Loss” – These claims can confuse the means by which IULs generate interest and growth on the value of the policy by making it seem like IULs offer direct participation in the stock market, when in reality the interest credited to a IUL policy’s cash portion merely depends on the performance of a stock market-linked index fund that does not actually invest in the market. Furthermore, claims like these can overlook the potential for losses through insurance costs, caps, and spreads that can limit or negate growth in the value of a policy.
- “Outperform Your 401(k)” – Some advisors or firms may tout IULs as a superior investment alternative to tax-qualified retirement plans, but such representations ignore the benefits of qualified retirement plans such as employer matching and historical market performance. These claims incorrectly suggest that IULs offer better tax advantages or less volatility than investing in the market through qualified retirement plans.
- “Tax Shelter for High-Income Earners” – Advisors or firms may wrongly suggest that IULs can provide a loophole to shelter income or wealth from taxes. However, such claims ignore the potential for scrutiny by state and federal tax regulators, who frequently investigate financial products that result in avoidance of income or capital gains taxes where not specifically authorized by law.
- “Life Insurance with Living Benefits” – These representations about IULs seek to characterize the products as a dual-purpose tool, offering a life insurance policy along with a means of growing wealth through investment. However, firms and advisors may fail to disclose that the living benefits of IULs have restrictions or limitations, such as strict underwriting requirements or costly riders.
Financial Firms and Life Insurance Companies Engaged in IULs
Various financial advisory firms and life insurance companies have engaged in aggressive marketing of IULs, including to individuals whose financial goals and risk tolerances may not align with the limitations and potential downsides of these products. Examples of life insurance companies that vigorously market IULs include:
Insurance Companies
- Allianz
- Columbus Life
- Family First Life
- Minnesota Life/Securian Financial
- National Life Group
- Pacific Life
- Protective
- Prudential
- Transamerica
Financial Firms
- Ameritas
- Equis Financial
- Equitable AXA
- Five Rings Financial
- Global Atlantic (Accordia)
- Integrity Marketing Group
- John Hancock
- LifePro Financial
- Mutual of Omaha
- North American
- Penn Mutual
- PHP Agency
- Symetra
- Symmetry Financial Group
- World Financial Group
IULs in South Carolina
South Carolina individuals and families have become victims of financial firms and insurance companies targeting customers with unsuitable IUL products. One South Carolina couple recently filed suit against their financial advisor and the life insurance company that sold them their IUL policy, claiming that their advisor and the insurer advertised the policy based on unrealistic illustrations of the returns the policy would provide. However, the policy proved incapable of providing the promised income stream, leaving the couple facing the option of putting more money into the policy after having already liquidated a significant portion of their life savings or letting the policy lapse and losing their premium payments.
We help individuals and families who have suffered financial losses throughout South Carolina, including in:
How an IUL Lawsuit Lawyer Can Help
When a financial advisor or insurance firm has sold you an IUL that you discovered did not suit your financial or investment goals or needs, you may have the right to pursue financial compensation for losses you incurred via an indexed universal life lawsuit. An IUL lawsuit attorney can help you pursue justice and financial compensation after suffering an IUL scam by:
- Investigating the circumstances surrounding the marketing of an IUL to you or your family to gather evidence of negligence or misconduct by a financial advisor or firm
- Reviewing your financial records and working with experts as necessary to determine the losses you sustained after an advisor or firm misled you into purchasing an IUL
- Identifying all potentially liable parties, including individual advisors, financial firms that employed the advisors, and the insurance companies that sold the IUL products
- Vigorously pursuing your legal claims, ensuring that you file within the statute of limitations and fighting for the best possible outcome for you, including by going to court when necessary
Contact Our Firm Today to Discuss Your Legal Options
The complexity and risks of IULs make them unsuitable financial products for many investors. Unfortunately, some financial firms and advisors may push IULs on clients. Contact RP Legal LLC at (803) 805-7546 today for a confidential consultation with an experienced IUL lawsuit attorney to discuss your legal rights if you’ve suffered financial losses from indexed universal life insurance products that your broker or financial advisor negligently recommended or improperly pressured you into. Our firm will fight to secure the financial recovery and accountability you deserve for a financial or investment firm’s negligence or misconduct.