When “All’s Good” Isn’t: The Hidden Pain in Premium Financed IULs
Is it just me, or does this look like one of your utility bills with line after line of charges? I’m being somewhat facetious, but at least these things itemize expenses, unlike the “black box” products that just lump everything together and call it good.
But here’s the real issue: I want this policy owner to understand that in a stellar stock market, he’s up 1.94% net. Last year, when the market gained 34% during his crediting period, his policy was up 2.3%.
This is a premium financing case, and he’s trailing his loan interest rate by a wide margin. The kicker? He has no idea. That’s because the premium finance report shows gross crediting (which looks decent), and the carrier statement does the same.
The Illusion of Safety
If the next twelve months are flat or down, my calculations show he’ll go backward 4.61%, even with his 0% floor. So forgive me if the next person who says you “can’t lose money in an IUL” gets an exasperated stare.
What makes this more concerning is that we’re still in the relatively early years, with low mortality charges on a $20 million death benefit. Sure, early expenses are expected, but he didn’t understand that. And he definitely didn’t expect to be millions underwater this soon, between this and another $20 million financed policy.
The Comfort of Denial
Despite that, he keeps hearing everything is “doing better than projected.” I hear this constantly. While the market itself may be soaring, most of these policies aren’t, cap rate decreases and rising lending rates have quietly eroded performance.
And the program as a whole? It’s often in reverse. Yet advisors keep telling clients “All’s good,” when it’s anything but.
Understanding What You Signed Up For
Even if the policy were performing exactly as projected, and lending rates hadn’t increased, disappointment would still set in. Why? Because the transaction was never truly understood. Numbers on a spreadsheet are easy to nod along to, but it’s a different story when you’re asked to post another million in collateral.
Promoters gloss over unattractive details because they complicate a sale. Policy owners, for their part, often don’t bring an objective lens to the table. The result? Shock, frustration, and financial strain that could have been avoided, if only the real economics had been laid bare from the start.
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered InvestmentAdvisor.
OC Consulting Group and its affiliates are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc
