This newsletter illustrates everything that’s wrong with certain elements of the insurance industry. This is a make-a-sale-at-all-costs story.
This story is already bad enough, but just to make it worse, this also happens to be an IRA rescue sale where most of the premiums will come from taking withdrawals from an IRA.
Several Downloads You’ll Want to See
You may not believe the story in this newsletter. But you can see it for yourself by clicking on the following link to download documents that prove the story (and name the agent involved).
www.advisorshare.com/off-the-books-iul-illustrations
Downloads—
1) The unauthorized Illustration given to the client (showing pie-in-the-sky tax-free borrowing)
2) The illustration given to the client (showing NO borrowing)
3) The company illustration showing the tax-free borrowing (this was NOT given to the client, and it’s significantly lower than what the unauthorized illustration shows)
4) A second company illustration showing borrowing, but where the illustrated rate is higher because of an additional fee to “buy up” the cap (this was also not given to the client)
What Happened?
An insurance agent pitched a 58-year-old/non-affluent client the use of an IUL (Indexed Universal Life) product as a retirement cash flow tool.
The agent gave the client two illustrations:
1) The unauthorized illustration that had the following:
-Illustrated rate = 7.5%
-Tax-free borrowing from ages 65-90 = $35,070
2) Illustration from the insurance company that showed NO borrowing.
Misleading and unauthorized
As soon as I saw the unauthorized illustration and the company illustration showing no borrowing, I knew exactly what was going on. If the agent used the authorized illustration from the insurance company, the numbers would suck so bad that no one would ever buy the policy.
What is the actual borrowing from the insurance company’s illustration?
$23,220 a year ($11,850 less a year!)
Would this client have purchased the IUL but for the unauthorized illustration? No way!
FIA with Guaranteed Income for Life
FYI, if this client had purchased a Fixed Indexed Annuity (FIA) with the premiums allocated to the IUL policy, he could have had a $41,744 annual guaranteed income for life payment.
IRA Rescue—as I alluded to above, all but one premium is budgeted to come out of the client’s IRA. Pulling money from an IRA to fund an IUL is a mathematical loser. I’ve been an expert in lawsuits against agents making this sale, and I have a consumer protection website warning about this: www.stopirarescue.com.
But, even if the guaranteed income rider product is purchased in the IRA, this client is most likely in the 11-13% effective income tax rate. If the rate is 12%, the net after-tax amount from the income rider payment would be $36,761.
That net guaranteed income amount (which is guaranteed, unlike the IUL cash flow) is more than the cash flow from the bogus off-the-books illustration and way more than the authorized borrowing illustrated by the insurance company.
This sale actually took place—the travesty of this story is that I got a call from the consumer AFTER he purchased the IUL policy described in this newsletter. He saw me on a podcast and wanted to get my opinion.
What did I do?
I gave the consumer the actual illustration showing what the insurance company thinks he’ll be able to borrow ($23,220, NOT $35,070).
I told the consumer:
-that he’s been duped by the agent
-to make a complaint to the Department of Insurance
-to make a complaint to the insurance company
-to consider suing the agent if he can’t his money back and the policy rescinded
Who is the agent?
I’m not going to name the agent in this newsletter.
What I can say is that he’s been in the industry for 25+ years, he wrote a sales book on IULs, and if you have been in the business for 10+ years, the chances are nearly 100% you know him.
If you want to know who it is, use the sign-up form to review the documents, and on the page with those documents, you can find out who it is.
What’s the moral of the story? Don’t use bogus off-the-books illustrations and don’t be so desperate to make sales when the only way to make them is to do so using misleading sales techniques.
New Life Expectancy Calc Helps Advisors Dial-In Realistic Retirement Plans
If you missed last week’s newsletter you missed out on this new OnPointe feature and the ability to give it a try yourself. It’s pretty darn cool!
Try the LE calculator for yourself
