David H. Kinder, RFC®, ChFC, CLU
Buyer Beware... of False Promises Appearing Real
Updated: Jan 18
Today, I was on a webinar with one of the insurance companies I represent that was giving a new product overview of a life insurance policy being rolled out on November 1st and replacing their prior policies (due to a new mortality table EVERY insurance company is doing this). In this new product, there is something new called an 'index multiplier'. In short, in exchange for a fee on your cash values, you can have a potentially higher return (using a somewhat complex calculation). Here's my problem: Indexed Universal Life policies are designed and marketed as a way to "get a decent upside without the downside risks to your money". By using these index multipliers, you will have a FEE charged against either your return (with a good return) OR against your cash values if the market is flat or negative.
Here's problem #2: Every time a fee is charged against your cash values means LESS money to continue to compound long-term! This poses a SIGNIFICANT risk, particularly with increasing costs of insurance and borrowing costs in retirement years!
All this means is that you DON'T "avoid the downside risks" with these multipliers.
Why are these multipliers showing up?
I can only think of ONE reason: it's a "compliant" way to show an additional return on a life insurance illustration.
So, why write about it? I'm writing about it because, if a client were to ask me about using multipliers, I want to have something "on record" that I don't like these multipliers. However, the client owns their policies, not me. I'm just the agent of record. If the client chooses to allocate some or all of their cash values and premiums to these multipliers... that's on them, not me.
What index segments DO you like?
I like simple "point to point" indexes with a cap. They're simple and easy to explain... and NO additional fees! There is also an 'uncapped' index segment with a spread. Now a spread is like a 'deductible' - it gets taken out first from the return. If the spread is 5% and the index did 30%... you'll get 25%. But if the index was flat or negative, you still won't pay any fees against your policy! There's a couple of articles out there that I think are also decent to writing about the details of these multipliers:
I am also told... that there are some IUL policies where that fee is based on the POLICY and not just the index segment! Which means you can't just allocate the fee away, you're stuck with it! (Ugh!) There had BETTER be a good economic reason for that, but I can't think of what that could really be. (And I wouldn't sell that kind of policy myself.)
The GOOD news
I'm on several internet discussion groups... and so far, NO ONE likes these multipliers. We do share industry concerns about full disclosure and potential future lawsuits for misrepresentation on these 'multipliers', but no professional agent, so far as I've seen, has come out to be in full favor of them (yet). Too many moving parts, negates the true promise of these policies, and they just "game the illustration system" at the potential cost of the client. I'm certainly not a fan.