Actual IUL Historical Renewal Cap Rates (the info everyone has been looking for)
If you missed last week’s newsletter, you can still download this eye-opening piece which lists the renewal caps of the top 18 IUL carriers by clicking on the following link:
https://advisorshare.com/iul-renewal-cap-rates
IUL Marketer Hit with Cease-and-Desist and a $10,000 Fine
There are two downloads you’ll want to read:
1) The 5-21-2024 original cease and desist order
2) The 8-15-2024 final consent order with the agreed to $10,000 fine
To download both of these orders, click on the following link:
https://advisorshare.com/iul-cease-and-desist
This story should be interesting to advisors who are advocates of Indexed Universal Life (IUL) as an asset class and those who don’t like IULs.
I am NOT using the advisor’s name (he’s not the point of this newsletter (although if you download the orders, you’ll find out that he’s a prolific marketer of IULs on the internet)).
What did the original cease-and-desist order say?
Respondent and affiliates shall immediately cease and desist from:
“1) Marketing IUL as a “retirement” or “investment” vehicle.
2) Marketing the Maximum Premium Indexing (“MPI”) plan/product as an “IUL 2.0” or otherwise different from other IUL policies.
3) Marketing the Retirement Equity Line of Credit option as exclusive to the MPI plan/product and/or only available if consumers purchase the IUL policy through respondents.
4) Marketing the MPI plan/product as anything other than an IUL policy with a recommended timeline for when and how much to pay in policy premiums.”
In summary, it seems that the IUL marketer touted that he had a unique way of designing an IUL that could only be done through his firm. It also appears that the DOI (Department of Insurance) didn’t like the agent using the terms retirement or investment.
Hyper-Funding
This agent has a lot of content on the internet explaining how he thinks an IUL should be funded and designed. I’m not a fan and I’m not surprised he got the cease-and-desist order. As the DOI stated, there really isn’t anything technically unique about what he’s recommending.
It’s my understanding that this agent is recommending a type of hyper-funding of an IUL. Hyper-funding is when you borrow money from an IUL and then use it as additional premium for an IUL.
The theory behind hyper-funding is simple. “IF” you are able to make a positive loan arbitrage on the money you borrow, you will end up with more money at the end of the day. Mathematically, that could happen, but doing so turns a no-risk IUL into one with risk.
FYI, many insurance companies FORBID agents from selling an IUL using hyper-funding.
But hyper-funding is not why this agent got the cease-and-desist and eventually settled by paying a $10,000 fine.
It was all about how the agent marketed to consumers.
From the original order: The OIC opened an investigation after receiving a complaint from an insurance agent (the “Complainant”). The Complainant alleged that the agent was perpetrating fraud on consumers across the nation by disguising IUL policies as the MPI product. The Complainant stated, “[w]hile they tout a proprietary product, there is nothing proprietary about this product, it is simply an IUL contract.”
Interesting isn’t it? This all got started when an insurance agent complained to the DOI.
It was alleged that the agent was touting to consumers something special that they could only get through this agent (or his licensed/affiliated agents). There is nothing special about it in the sense that any agent could sell something similar (although only ONE company in the industry that I’m aware of allows agents to sell their products openly using hyper-funding).
Also, the DOI didn’t like the agent touting that the IUL was a “holistic retirement plan.”
An IUL is not a retirement plan. An IUL is a cash value life policy that can be used to generate cash flow in retirement. You might think it’s a distinction without merit, but the distinction meant a lot to the DOI.
There is a lot more you can learn about what NOT to do when marketing IULs to consumers that you can read about in the two orders from the DOI. I think these orders should be mandatory reading for anyone selling or marketing IULs to consumers.
By the way, after the agent agreed to change his marketing material and paid his $10,000 fine, the cease-and-desist order was lifted.
The bottom line…don’t make IUL sound better than it is and don’t tout that you can do something unique with an IUL that others can’t. It may be a good sales tactic, but it’s one that could get you in trouble with the DOI in the states you operate.
And I HIGHLY recommend you DO NOT pitch clients hyper-funding. Again, most major IUL carriers DO NOT allow their agents to market/illustrate hyper-funding to consumers and if they find out you are, it’s likely you’ll be terminated.
