Just be honest, please.
By Bill Boersma
“The Policies also provide downside market loss protection such that, even if the index return is negative, the crediting rate floor is 0%, which insulates the Policy’s cash values from index-based losses.”
Let’s deconstruct this sentence taken from Pacific Life’s response to the Busch complaint. I’ve had numerous discussions about this, and I believe it’s one of those things that the respective parties have dug in and no one is going to give an inch.
IUL policies typically have a 0% floor. The most egregious of practitioners use this to insinuate, or even outright say, that you can’t lose money in an IUL policy. Of course you can, because there are policy expenses and charges so cash value will go down if crediting is $0.
Many others say you can’t lose money due to the index decreasing. I don’t agree with this. If you get no crediting because the index is flat or negative, and the cash value goes down when expenses come out, then the cash value has decreased because the index had no crediting.
Did a car ever stop on the side of the road because it ran out of gas? No! It ended up on the side of the road because the engine stopped. The engine stopped because there was no more gas being fed to it. What are you going to think of me if I make that argument?
There’s no end to corny analogies. No one dies from falling off a cliff. They die from hitting the ground. One directly leads to the other. Everyone understands that falling off a cliff can lead to death. It’s even a grade schooler’s joke.
The “You can’t lose money due to index-based losses” is tantamount to a joke, not a legal argument or sales pitch.
The quote above is all the more egregious because it comes from an insurance carrier with some of the highest policy expenses ever incorporated into a life insurance policy. They are so steep that a policy owner can lose their entire policy even if the contract experienced positive crediting year in and year out.
Life insurance policies can lose millions of dollars in a very short order, even at current or maximum projected crediting. I’ve seen policies lose seven figures in a single policy year.
0% crediting itself doesn’t cause a reduction in cash value, it results in a reduction in cash value.
Why engage in word games? It only serves to undermine us as an industry.
As I am known to do, I took the language from the response and put it into AI. I meant to ask a question, but I mistakenly only put in the quote and hit enter, so there’s no way I could “lead” it. Here’s the output.
Query: “The Policies also provide downside market loss protection such that, even if the index return is negative, the crediting rate floor is 0%, which insulates the Policy’s cash values from index-based losses.”
Response: That sentence is technically accurate but rhetorically loaded. Here’s what it’s really saying – and what it’s quietly not saying.
Plain-English translation
If the index goes down, the policy doesn’t get a negative credit – it just gets 0% for that year.
So yes, there is no explicit negative index credit.
What “downside protection” actually means here
- Index losses are floored at 0% → no market-linked loss is posted.
- Policy charges still apply → COI, admin fees, rider costs, etc. continue regardless.
- Cash value can still decline in a negative or low-crediting year due to expenses alone.
- Opportunity cost is real → a 0% year following a strong equity market recovery can materially drag long-term IRR.
Why the wording is misleading (or at least incomplete)
- “Insulates cash values from losses” implies absolute protection.
In reality, it’s protection from negative index credits only, not from:
- Policy expenses
- Cap reductions
- Participation rate changes
- Volatility control drag
- Inflation erosion
- It subtly conflates index loss protection with cash value protection, which are not the same thing.
A more precise (and defensible) version
If this were tightened to be accurate without marketing gloss, it might read:
“The policies include a 0% floor on index-linked crediting, meaning negative index returns do not result in negative index credits, although policy charges may still reduce cash values.”
That version would survive scrutiny from:
- An actuary
- A regulator
- A judge
- Or a well-informed policyholder
The preceding message, starting at “Query” is a prompt that was fed to Chat GPT as an educational exercise. The content is meant to represent output from Chat GPT and is not a comment by Bill Boersma, Valmark Securities, Inc. and/or Valmark Advisers, Inc. There is no assurance that Chat GPT statements would survive scrutiny from the preceding list of entities.
Boersma is a CLU, AEP and LIC and the founder and owner of OC Consulting Group. More information can be found at www.OC-LIC.com, www.BillBoersmaOnLifeInsurance.info or email at bill@oc-lic.com or call at 616-456-1000.
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor.
OC Consulting Group and its affiliates are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.
