Indexed universal life insurance (IUL) is an insurance product that seems to promise you can have your cake and eat it, too. The devil is in the details, and when you really examine them, it becomes clear that these are products designed to be sold, not bought.
Complexity Does Not Favor the Buyer. The more complex the policy, the less likely you are to really understand how it will work in the future. IULs usually have a cap rate. That means if the stock market has a really great year, such as the 30% index return in 2013, your return is “capped” at some lower figure.
So how can IULs offer “market returns” while still guaranteeing you won’t lose money, at least on a nominal basis? They don’s simply don”t get anywhere near the market returns due to the costs of the insurance, the additional fees, the loss of the dividends, and the participation rates.
