Is IUL a Scam? ➡️ Why Indexed Universal Life Insurance is Very Misleading

What's going on my fellow wealth creators, Matty Ice here. In this video, I'm going to do something that might seem a little contradictory to a lot of the content that I've posted on my channel about IUL, and it might seem like I'm coming to the defense of IUL. I assure you I'm not. I'm still not a fan at all. But is IUL a scam? Are we going to go that far with my distaste of IUL to say that it's a scam? Absolutely not. The reason I want to make this video, because IUL is not a scam, I saw this on a LinkedIn post as a comment. It was a post about this big class action lawsuit against this IUL company, and somebody left a comment on that post calling IUL a scam. And here's the thing, regardless of how much I don't like IUL, and actually it's really, I always say this, it's not necessarily IUL, it's how it's marketed, how it's illustrated, how it's sold, I have the biggest issue with, but just because I don't agree with it, and it's not a good fit for me, doesn't mean it's a scam. And I just think, I see this a lot, also with 401ks, I just did a video on this, where I did a video breakdown on another channel of where they were going through content, influencers saying that 401ks are a scam. I'm like, really dude? It's just ridiculous. Just because you don't agree with it, and it's not a good fit for you, doesn't mean it's a scam. I just think that's kind of a dumb thing to say, and we shouldn't be throwing that word around lightly. The Bernie Madoff fund was a scam, Enron, scam, the Fyre Festival, scam, okay? But 401ks, IULs, giving and paying whole life insurance, are they scams? No. Okay, here's the thing guys, these are just financial products, all right? And they have certain benefits, they have certain pros and cons over other financial products, and at the end of the day, they're going to be great for some people, and horrible for other people. And then maybe there's people in the middle, they're not sure, so they keep doing the research, maybe they choose something else, whatever. All right, but at the end of the day, they're just tools that we can utilize to accelerate the wealth building process in our lives. I talk about that quite a bit on my channel as well, where I believe we are our greatest asset, it's not any one individual specific financial product, and I think sometimes we put way too much faith in financial products to solve our problems before we've really done the work on ourselves, and invested in ourselves. One of the great quotes that I've learned from one of my mentors is, invest inward first before you invest outward. I just, I love that, because at the end of the day, we're the ones that do the research about these things. We're the ones that create the opportunity to even be able to utilize these types of financial products, right? So it's really important, I think, to understand that distinction. But when I saw this gentleman called the IUL a scam, I'm just like, no, is it very misleading? Is the marketing around it extremely misleading and way overhyped? Absolutely. And we're going to talk about a couple of those things, because I can't make an IUL video without bashing it a little bit. And bashing is probably a strong word too, because all I'm doing is exposing or sharing how these things actually work. I mean, and I'm sharing my journey and my experience with it, guys. Like I said, I almost purchased an IUL, and it would have been a horrible decision, because I would have put a bunch of money into something that I thought I understood, but I didn't, because the only thing I was told was about how amazing it was. I wasn't shown all the things that can go wrong. And that's messed up, man, because these are major financial decisions that people are making based off of extremely misleading information. But here's the thing, again, it's not a scam, because I've actually seen good illustrations, good representation of IUL by a couple of agents. It's very rare, but I have seen it. And when I saw it, I was like, I've actually did a training on this. I interviewed, kind of had a back and forth with a gentleman that I have a lot of respect for. And we've had our back and forth conversations on LinkedIn. We did a training on the channel about whole life versus IUL. We compared different illustrations and stuff. There's a lot of great information in it. I highly recommend you check it out. I will link that down below. But when I saw the IUL illustration that he put together, I was like, okay, this, in my opinion, is how IUL should be represented, how it should be marketed. Because he stress tests the crap out of it, meaning he put multiple zeros, like every fifth year he put zeros in. We're going to talk about the misleading nature of most IUL illustrations here in a minute, how they show uninterrupted compound growth, which is never going to happen, not even close. And then it just completely blows up the entire assumption. But anyways, he showed a much more conservative rate, even though, well, I mean, he put the zeros in too, but he was showing, I think it was like five and a half percent, whatever. And he also showed withdrawals up to basis and then wash loans for the retirement income, not the participating loans that most IUL agents illustrate. We're going to talk about all that. My point right now, though, is that these things can be done correctly with the right agents, with the right product, with the right design, but that's the keys. You got to make sure you're working with the right person. And you have to make sure you understand how these things actually work, because how do you know you're working with the right person if you don't know how the product works? How do you know somebody is showing you the best illustration for you? Or are they maybe maximizing their commission? You got to be careful with this stuff. So with that said, so I've answered that. IUL is not a scam. It's just a financial product. It just happens to be one of the most misrepresented financial products, at least that I've ever come across. So we have to be very careful, but that just comes down to doing our research. So let's talk about a couple of things that make IUL pretty misleading, just based on the marketing and the illustrations and things like that. But not, and eventually that's what leads to people thinking it's a scam. It's not. All right. So a couple of things here. I got a few bullet points. I want to talk about cost of insurance. All right. I think this is really, really important to understand. When I learned how this worked, I was like, this is, this is insane. Especially compared to what the, like all the content I was listening to about IUL, about how amazing it was. Like I literally heard agents, these influencers say that your cost of insurance goes down with an index universal life policy, which is a complete lie. And I couldn't believe that I was hearing this kind of stuff. And once I heard the other half of the story, here's how it actually works guys. Your cost of insurance increases every single year with an IUL. Why? It's built on annual renewable term, which renews every single year, annual renewable term. So what happens is as you get every, every year that you get older, your your chances of passing away increases, obviously the older that we get. Right? So the life insurance company is going to charge a quarterling for that accordingly for that. So with an IUL, when you're younger, like during the accumulation phase of an IUL, it's not that big of a deal because your cost of insurance is low. So it's very low in the beginning, especially a lot lower than like whole life insurance. You'll typically get for the same dollars, you'll get more death benefit with an IUL than you will whole life because with whole life, the cost of insurance is spread out. It's level. So it's more expensive in the beginning, but it's far less expensive later on down the road compared to an IUL because when you hit 60, 70, 80 years old, that cost of insurance not only goes up every year, it goes up exponentially guys. So it goes up every single year. Now here's what the gentleman I'm talking about, the content I was watching should have said, all right, he should have said that if you manage your net amount of risk, the amount you have to pay for your cost of insurance can, can go down as you get older because your cost of insurance, whatever that formula is, depending on your age that is applied to a number called net amount at risk. Net amount at risk is death benefit minus cash value. Whatever that number is, that's what cost of insurance is applied to. And that number, that net amount at risk that can be managed in an IUL. Now, hopefully your policy performs at least close to what was illustrated. A lot of the times it's not, and we'll talk about that in a minute, but even still, because of the flexibility, because it's a universal life policy, there's flexibility to adjust the death benefit and things like that. So there's different levers you can pull to manage that amount at risk. But here's the thing guys, I might be speaking Swahili to some of you right now. Like, what are you talking about? You're throwing all these technical terms at me. That's the point. I want to throw these technical terms at you because you have to know them if you are considering an IUL, because all these things have a major, major, major impact on the long-term performance of the policy and whether or not that policy is going to even be there for you during your retirement. You have to know this stuff. So a lot of misleading stuff like around cost of insurance, where it's not a big deal. Guys, cost of insurance can absolutely blow your policy up if you are not careful. If you are not managing that net amount at risk and that number gets too high, the gap between your death benefit, your cash value, because your policy is not performing, and maybe you have a $300,000 outstanding loan balance, and now you have 5% interest that is due on that because you got a zero year, is that the gap between your death benefit and cash value increases, that amount at risk, your cost of insurance becomes a bigger and bigger problem. So you just need to be aware of it. It's not necessarily a deal breaker. You're willing to manage things. You have to be aware of it though, because otherwise you don't even know that there's something to be managed, right? That's a problem. All right. That's cost of insurance. Let's talk. Okay. I want to address this here. And actually, you know what? There's one more bullet point I want to add to make sure I don't forget. All right. Let's talk about whether you can lose money in an IUL or not. You absolutely can, and you absolutely will whenever you have a zero year. Here's why. So with IULs, you're not directly invested in the market. There's a call option strategy that's involved. I'm not going to get into a ton of detail on that. That's a whole other conversation. I've done other training on that. But so what happens is if the market goes down, you get that 0% credit, right? Some IULs have 1% floors, whatever. All right. But you're guaranteed not to lose money in the market, but you still can lose money because the market went down or sideways. Here's what. You still have your cost of insurance and whatever other costs, fees, expenses are associated with the policy. Where do you think that comes from, guys? It comes from your cash value. So when you hear people say that you can't lose money in an IUL, which I hear all the freaking time, that's not true. That's a lie. It's a half-truth, I should put it. I don't think people are intentionally lying. I just don't know that it's being articulated very well. You can lose money in an IUL, you're just not invested in the market, right? So if the market crashes 20%, you're not going to lose a lot of money, but you will have cost of insurance, other fees and expenses that get deducted from the cash value. So your cash value can decline. It can go backwards, which kind of leads me to the next point about the illustration and just how misleading the illustration is, because it's showing growth every single year, unless you're working with somebody like my friend that I was talking about earlier that puts the zeros in and stress tests the policy, makes it a lot more realistic. But I've only seen that done twice out of all the policies that I've seen and how all the agents talk about it. It shows this uninterrupted compound growth, which is never going to happen because the market doesn't go up every single year, guys. And especially since your cash value can go backwards due to the cost of insurance and fees due during that 0% credit. So you're going backwards. Now you have to catch back up, which is more difficult to do because you have a cap on your IUL. So it's more difficult to catch up. That interrupts the compound process. And now your policy is no longer growing by the amount it should be right here. It's growing by this amount, right? Because you didn't get the interest credit for that year. You had to catch up. So what's the lost opportunity cost of that and how is that going to impact the long-term performance of the policy? It's not good, right? So the illustration itself is pretty misleading, not to mention when you're doing something like if you're using the S&P 500 and you're looking at the historical performance of the S&P 500 to get an idea of what your policy might do, that's misleading because you're not actually invested in the S&P 500. You don't get dividends. You have the cost of call options. You have the call options budget that needs to be generated from the general fund. And then you have all these other fees and expenses. So how on earth can we actually use the S&P 500 to determine what our policy is going to do? I mean, I suppose you have to have some kind of benchmark to work with, but you better illustrate that thing very, very conservative. And I'm not talking about 6.42% conservative. I think that's still too high, but that's just me. It's getting a little late. So let's try and get a little bit more light here. And I'm just going to finish this up as quick as I can. So anyways, that's the illustration. A couple of final things, the idea that you can pay off an IUL. So another misleading part of the IUL illustration that is often not disclosed is it'll show premium payments not being made anymore. And I actually heard an IUL agent say this the other day in an interview on somebody's YouTube channel that you can pay off an IUL. So you can put money into it for 10 years, fund it for 10 years, and then not make a premium payment ever again. It's paid up. That's a complete lie. It's called a vanishing premium. So it vanishes on the illustration. You don't technically have to make a premium payment. But guys, in an IUL, on a universal product, universal life product, where there's always cost of insurance, that is due every single year, even if you stop making payments. So if your IUL doesn't perform as illustrated, and you start to run low on cash value, that's when you can potentially get a pretty big, large bill from the company later on down the road saying, hey, you don't have enough cash value to cover the cost of insurance. We need a payment here. And it'll be a pretty big payment. So the vanishing premium, very misleading. Here's the thing. You just have to know what it actually is. You can't pay off an IUL. You can stop making premium payments. And we're getting pretty dark here. Sorry, guys. I don't know if that really helps. Whatever. Sorry for the low production quality. I'm just, hopefully, you just care about the content. That's what I care about. Anyways, just understand you can't pay off an IUL. All right. You can stop making premium payments. With a whole life, you can pay it off. Never have to make another premium payment ever again. With an IUL, you cannot. Last thing, this retirement thing. All right. So life insurance can provide supplemental retirement income. Supplemental, not, I don't think it was ever designed to be the primary source of retirement income like a lot of IUL illustrations demonstrate and show. Got to be really careful with that, guys. It can provide supplemental retirement income. It can be a very good volatility buffer. All right. I talk about that in other videos. It can allow you to spend more of your other assets freely because you have the death benefit to replenish those assets. Once you pass, that would go on to your beneficiaries, your spouse, your family, et cetera. So there's a lot of benefits to it. But I've seen some crazy IUL illustrations, like the amounts of retirement income they show taken 8, 10, 12% every single year. Again, showing uninterrupted growth, no zero years. It's like, dude, that is insane. Final point on that. One of the biggest risks involved with that is when IUL agents are showing the participating, like you're taking policy loans to create that tax-free retirement income. All right. And they usually illustrate participating loans. What's happening is the interest on that policy loan is compounding against you, whether it's 5%, 6%, whatever the interest rate is. As soon as you have a zero year, if you have a pretty massive loan balance, which you will if you're following what the agent showed you on the illustration, where does that interest come from? So if you have, I don't know, a $250,000 loan balance after five years, taking $50,000 per year in income from the policy loan. Okay. 5% on $250,000 is quite a bit of money. Where does that come from? Comes from your cash value, guys. Now, what does that do to the illustration? All these assumptions that have been made. It's not good. So anyways, it's getting pretty dark over here. Hopefully that was helpful, guys. At the end of the day, IUL is not a scam. It is pretty misleading with the majority of the marketing and representation out there. So I just want you to be careful, but just know it's not a scam. Just make sure you're working with the right person. If you want help with that, I'll have a link down below. You can book a call and I'll be happy to make an introduction, et cetera. But at the end of the day, for me, even understanding the risks and all the things involved, I don't want anything to do with it. I just want to know that my money is going to grow every single year. I'm going to get dividends most likely. They're not guaranteed, but I can use the money to build wealth in other ways. And there's not a thousand different things that can be changed in the policy. That's just like, I can't deal with that. I don't want to deal with that anyways. So I hope that was helpful, guys. Please drop your comments down below. Any questions that you have, make sure you check out all the links in the description. Really good stuff there. And I will talk to you in the next one. To your success. Matty Ice is out.