Key Takeaways
- IUL caps typically limit gains to 8-12%, even if the market returns 25%
- Floor protection means 0% minimum—you won't lose, but you won't gain either in down years
- Only 5-10% of clients are ideal IUL candidates: high earners who've maxed 401k/IRA and have 20+ year horizons
IUL: Flexible Permanent Insurance
Client Question: "I heard you can get stock market returns with no risk—is that true?"
IUL offers index-linked growth with a floor that prevents losses—but there are important trade-offs most prospects don't understand.
How IUL Works (Simple Explanation)
- You pay premiums (flexible amounts)
- Part pays for insurance, part goes to cash value
- Cash value growth is linked to a market index (like S&P 500)
- If the market goes up, you get a portion of the gains (up to a cap)
- If the market goes down, you don't lose cash value (floor protection)
IUL Features
| Feature | Benefit | Limitation |
|---|---|---|
| Index-linked returns | Upside potential | Capped gains (8-12% typical) |
| Floor protection | Can't lose to market drops | 0% floor, not guaranteed positive |
| Flexible premiums | Adjust payments over time | Underfunding can lapse policy |
| Tax-advantaged loans | Access cash value tax-free | Interest accrues, can impact policy |
| Permanent coverage | Lifetime protection | Costs increase as you age |
Honest IUL Concerns
- Complexity — Most clients don't fully understand it
- Illustrations — Projections often use unrealistic assumptions
- Rising costs — Cost of insurance increases with age
- Cap changes — Insurance companies can lower caps
- Lawsuits — Some IUL policies have been subject to litigation
When IUL Might Make Sense
- Client maxes out 401k and IRA, wants additional tax-advantaged savings
- Long time horizon (20+ years) to let cash value grow
- Needs permanent coverage anyway
- Understands and accepts the complexity
The IUL Curious
Someone intrigued by IUL but doesn't understand it
Setup
A prospect heard about IUL from a friend who's an agent. They like the idea of "stock market returns without risk" but don't really understand how it works.
Client says:
“My friend sells insurance and he told me about IUL. He says you can get stock market returns but you never lose money. That sounds amazing—like best of both worlds. Is it really that good? Why doesn't everyone do this?”
Practice Objectives
- 1Acknowledge what attracted them to the concept
- 2Explain how IUL actually works (floors and caps)
- 3Be honest about the limitations and complexity
- 4Discuss whether it fits their specific situation
- 5Don't oversell—let them make an informed decision
The IUL Skeptic
Someone who's read negative things about IUL
Setup
A prospect has researched IUL and found articles about lawsuits and complaints. They want to understand if IUL is a scam or if there are legitimate uses.
Client says:
“I've been reading about IUL and honestly, I'm concerned. There are lawsuits, people saying they were misled about returns, complaints about hidden fees. Is IUL just a way for insurance companies to rip people off? Why should I trust any of this?”
Practice Objectives
- 1Don't dismiss their concerns—they're legitimate
- 2Acknowledge that IUL has been mis-sold by some agents
- 3Explain what the actual complaints are about (usually illustrations)
- 4Discuss when IUL does and doesn't make sense
- 5Be the honest professional they can trust
IUL for Retirement Income
A high earner asking about IUL for tax-free retirement
Setup
A 40-year-old professional earning $250,000/year has maxed out their 401k and IRA. They want additional tax-advantaged savings and heard IUL can provide tax-free retirement income.
Client says:
“I max out my 401k and backdoor Roth IRA every year. I've heard IUL can be like a "super Roth" where I can put in more and take it out tax-free in retirement. Is that true? A friend of mine says he's going to fund his retirement mostly with IUL policy loans.”
Practice Objectives
- 1Confirm they've maxed traditional options first
- 2Explain how IUL policy loans work for retirement income
- 3Be honest about the risks (policy lapse if underfunded)
- 4Discuss realistic expectations vs. optimistic illustrations
- 5Position IUL as part of a strategy, not the whole strategy
Explaining the Illustration
A client trying to understand an IUL illustration
Setup
You're showing a client an IUL illustration and they're confused by the numbers. They want to understand what's realistic vs. what's just projections.
Client says:
“This illustration shows my cash value at $500,000 in 20 years, but there are all these different columns with different numbers. What's the difference between "guaranteed" and "non-guaranteed"? Which number should I actually expect?”
Practice Objectives
- 1Explain the difference between guaranteed and illustrated values
- 2Be clear that illustrated returns are not promised
- 3Show what happens in different scenarios (good and bad)
- 4Help them understand the assumptions being made
- 5Manage expectations honestly
A client asks why their IUL cash value didn't grow much when the S&P 500 was up 20%. The most honest answer is: