To download the complaint (it should be MANDATORY reading), click on the following:
Complaints are not much fun to read. But, since I’m an attorney, I figured I’d use my skills to highlight the important parts of the 50-page complaint to save advisors time when reading it.
When a high-profile lawsuit about IUL policies hits the press, advisors forward various articles and ask for my opinion. Because this lawsuit is by Kyle Busch (a famous NASCAR driver) and because there are articles in Fox News, Yahoo.com, etc., I was inundated with emails asking me my opinion.
Kyle Busch’s X post (with video)
Kyle and his wife not only posted to X, they also recorded a very compelling video. To watch the video Kyle did with his wife, click on the following link:
https://advisorshare.com/kyle-busch-complaint
https://advisorshare.com/kyle-busch-video-on-x
Here is part of the text:
We are sounding the alarm on a hidden insurance scam involving policies being sold by Pacific Life and other insurance carriers. These are being pitched as “smart retirement planning,” but too many families are being misled and left with devastating financial loss.
We were misled. If you’ve been approached with a plan tied to an index universal life product (IUL)…. RUN! Your future matters.
Advisors are contacting me because they want to know:
1) If it’s a legitimate claim
2) If legit, will it have an impact on the viability of IULs as a tool for clients
Selfishly, advisors who sell IUL are hoping it’s NOT legit and won’t taint IULs in the eyes of potential clients who may find the article when researching IULs.
Here’s my quick opinion of this lawsuit:
1) It seems legitimate (if the allegations have any truth to them, it’s a problem).
2) It should NOT taint in the eyes of consumers the use of IULs as a viable tool.
What are the allegations in this complaint?
That the insurance agent stated falsely:
-that the policies would be “fully-funded” and “self-sustaining” after a few years.
-that after being funded would generate substantial “tax-free income for retirement.”
That the agent never explained the ongoing costs and performance risks.
The Pac Life policy used is one I warned advisors to stay away from. It’s one with HUGE expenses due to the multipliers used.
It’s alleged that the hypothetical illustrated returns were misleading and that the carrier knew that the illustrated rates of return were not sustainable over time.
That the agent didn’t disclose that the cap rates on the indexes used in the product can be reduced.
The cap rate renewal disclosure is one that I think most agents fail to disclose. Why do I say this? Because agents are using illustrations with today’s cap rate on products and assuming they will never be lowered. The problem is that over the last 12+ years, ALL carriers have reduced cap rates on their product. This has a dramatic effect on the return in the product.
Download List of Actual IUL Historical Renewal Cap Rates
Our team (Mitchell DeFrancesco, specifically) has spent a lot of time mapping out the actual renewal rates of the top carriers. If you have not downloaded this eye-opening piece, click on the following (especially if you are selling NOA, Symetra, MN Life, Pac Life, Penn, LSW, and others):
https://advisorshare.com/iul-renewal-cap-rates
There are allegations that the policies were designed to jack up the “target” premium.
It is alleged that a 1035 was implemented that consumed $3.1 million in premiums and generated $664k in year-one charges (for no real benefit to the client).
It is alleged that the Pac Life product was designed to get around AG49 illustration regs (regs that were put in place to protect consumers from misleading illustrations).
-Outrageously, it is alleged that the policy was not designed at the MEC minimum death benefit (meaning it was designed for commissions, not maximum cash for the client).
In short, if the allegations are true, this policy sale is the poster child for what not to do when designing and selling a client an IUL policy.
If true, I hope the agent/Pac Life are forced to make Kyle and his wife financially whole.
Does this mean I’ve changed my mind on recommending IUL as an asset class that can be beneficial for someone’s retirement plan?
Nope.
If any good can come from this lawsuit, maybe that will be that more advisors will want to learn about IUL products.
As I’ve been saying for 25+ years, IULs when designed properly and when using a company that doesn’t DUMP caps, can be a terrific asset class to own (one of many that should be used in a comprehensive retirement plan).
