A Flawed Premise: Insurance as Investment
What is Universal Life Insurance?
Universal life insurance, and especially indexed universal life insurance, is one of the fasting growing segments of the life insurance market. As sales of traditional life insurance slow, something about indexed universal life insurance keeps it a best seller. As we’ve explored before, it’s certainly not because of its merit. Companies like Aviva, Midland Life, and Allstate are making millions off these policies. And it looks like the reason lies in the marketing.
How are they Sold?
Universal Life Insurance is often considered a product for high-income, financially savvy individuals, who find the main benefits to be tax deferment, promises of higher rates, and the opportunity to make investment decisions for your funds. In fact, it’s sometimes sold as if it were a long-term financial investment. Just one problem: that’s illegal. Since the 1930’s, Congress has blocked insurance salesmen from trying to turn their industry into a vehicle for profit, but it looks like after all this time the rules are starting to loosen. However, our California insurance fraud lawyers warn that as the line becomes blurred between investment and insurance, more and more consumers are at risk of falling victim to con artists and unfair dealing by companies looking to turn a profit.
What’s the Downside?
The financialization of life insurance has a number of potentially gruesome downsides. Perhaps first among them is the volatility it would introduce to an industry where the primary value lies in complete stability. Nobody wants to risk their insurance policy disappearing, and tight regulation of insurers has prevented that for nearly a century. Secondly, it complicates the offerings in what is, in essence, a very simple business. While we are accustomed to thinking of have a lot of choice as a good thing, there isn’t much real variance in life insurance. Any additional bells and whistles your policy may have can come at a serious tradeoff, and sometimes result in the company making more money rather than the policyholder. Major insurers like Pacific Life, Penn Mutual, and Minnesota Life offer dozens of niche life insurance products to customers looking for a life insurance policy.
By skirting the line between investment and insurance, more and more consumers hold policies that can provide a greater return to the company, and risk producing much less for the customer. Major insurance companies like Aegon, National Life, and others have been selling record amounts of IUL policies, thus greatly increasing the amount of their holdings connected to the stock market. They take a significant portion of the winnings in exchange for preventing the policy returns from dropping below a certain threshold.
Evans Law Firm is a plaintiff’s firm specializing in insurance and banking fraud, consumer rights, and IRS and SEC cases, as well as elder law, whistleblower, and class action cases. If you believe that you or a loved one may have purchased an indexed universal life insurance policy under false pretenses, or one which was improperly administered, call Evans Law Firm at (415) 441-8669, or email firstname.lastname@example.org