Are IUL Insurance Policies Good Retirement Income Tools?

Our columnist has his doubts and will be paying more than $50,000 to test his skepticism. He hopes he is wrong.

By Andy Panko

I recently bought an Indexed Universal Life (“IUL”) insurance policy … as an experiment. Yes, you read that correctly.

The best way to explain what I mean by “experiment” is to back up a few years to when I first starting coming across sales pitches for things called tax-free retirement accounts.

I started my fee-only retirement planning and investment management firm in 2019. Prior to that, I worked a few years in corporate roles at an insurance company and 15 years in various roles in investment banking and institutional capital markets financing.

Although I was in and around insurance and risk management my whole career, I wasn’t familiar with all of the various marketing names given to life insurance policies. However, I knew well what term life insurance was, and I was also aware of the basics of permanent life-insurance policies, specifically whole life insurance. I had heard of universal life insurance, but didn’t know much about it other than it’s a form of permanent insurance where the amount of the premium payments is flexible.

In 2016, after helping my mom try to figure out Social Security, I decided to go further down the rabbit hole of learning more about retirement-related personal finance, specifically with an emphasis on understanding the tax implications of planning for retirement. Pretty soon, I was hooked and decided that was what I wanted to do professionally going forward.

My three-year journey

That pivotal moment led to a three-year journey of reading, listening to and watching as much as I possibly could about retirement and tax planning. My goal was to learn as much as possible and start my own solo advisory firm, which I did in 2019.

In that journey, I came across a YouTube video of someone selling a “tax-free retirement account.” By that point, I had already obtained the CFP, RICP and IRS Enrolled Agent designations. I knew I didn’t know everything there was to know about the retirement planning landscape, but I was surprised that I had never learned of anything called a tax-free retirement account.

Given the name, I assumed it was simply a reference to a Roth account. But after some deeper Googling of the term, I realized it was instead referring to an IUL policy. To say that piqued my interest would be an understatement.

I always knew permanent life insurance could accumulate cash value, and that loans could be taken against the cash value as collateral. But prior to trying to learn more about tax-free retirement accounts, I was unaware of the ability to use such policies mainly for their cash-value accumulation and loan features, rather than primarily for their eventual payment of a death benefit. And so continued my curiosity.

While learning more about retirement and tax planning, I joined and answered questions in multiple retirement-focused Facebook groups. In these groups, I came across people promoting things called the LASER fund, private reserve accounts and Section 7702 plans. As with tax-free retirement accounts, I was surprised I had never heard of any of these before. However, after a bit of research, I quickly realized they are all ultimately IUL policies, just like tax-free retirement accounts. I was also surprised that all the people I saw pitching IULs under these various marketing names seemed to try to mask that their “funds,” “plans” and “accounts” were ultimately life insurance.

A deeper dive

As I continued researching the process of using IULs as retirement cash-flow tools, I learned more about how the products work, how macroeconomic and capital market conditions impact the interest they pay on cash value, what fees and costs they have, and how those may change over time and impact the cash value. I also learned how certain riders can help prevent a policy from lapsing and causing a large taxable event for the policyholder, etc.

Granted, I don’t sell or directly structure insurance policies. However, in my 19 years prior to starting my advisory firm, I had some actuarial experience, some contract-drafting experience, lots of derivative risk-management experience and even more financial-modeling experience. Plus, I also learned a lot through my CFP, RICP and EA studies. As such, I’m confident I have as good a professional background, educational foundation and technical skillset as anyone to be in a position to understand IUL policies and how they work.

With that said, I saw people promoting IULs on blogs, Facebook and LinkedIn with statements and claims that seemed glaringly misleading, only half true and/or outright wrong. For example, one IUL salesperson referred to them as “can’t lose money assets.” Another said he can use an IUL to help someone, “spend $400,000 as if it was $1,700,000.” Another said IULs have “no legislative risk” because they are “subject to contract law, not vagaries of tax law.” Another salesperson went so far as to say IULs have “NO risk.”

In all of these cases, I questioned the people about the claims they made and why I feel they are inaccurate. In all cases, the exchanges started off professional and very matter of fact. And in all cases, they regressed into me being told I don’t understand the products and that I’m biased against them. Additionally, in all of these cases, the people ended up blocking me so I could no longer see or comment on anything they post or write!

How IULs can be used

I’m confident I understand IULs and how they can be structured and funded to be used as life insurance retirement plans, or LIRPs. And I see how they can potentially play out as commonly illustrated:

  • Put into the policy, as early as possible, as much premium as IRS modified endowment contract (“MEC”) rules allow.
  • Let the cash value sit and grow by compounding interest crediting throughout the years, where there will never be an interest crediting lower than zero.
  • Eventually take loans against the policy’s cash value, where the loan amount stays within the policy and continues to earn interest. (Although a policyholder has to pay interest on the amount borrowed, that interest expense could potentially be the same, or lower than, the interest credited to the cash value in the policy. Hence the cash value can potentially continue to compound, even with loans outstanding.)
  • Rather than having to repay the loan during the insured’s life, it can be repaid from the policy’s death benefit upon the passing of the insured
  • Add an “overloan protection” rider to the policy to help prevent the policy from lapsing by ensuring its outstanding loan amount won’t exceed its cash value
  • Add a long-term care rider to the policy to get additional benefits and usage out of the policy if a long-term-care event occurs

Potential pitfalls

However, I also see how IULs can fall short — potentially very short — of how they’re originally illustrated and presented.

For example, there is a history of ongoing gamesmanship between insurers and regulators regarding how future interest crediting is shown in policy illustrations. In 2015, Actuarial Guideline 49 (“AG 49”) attempted to rein in what was viewed as unrealistic illustrated rates by setting a limit on the level of interest that could be projected on common indices. However, insurers got around that by offering products that had new interest “enhancement” features such as multipliers and bonuses that were able to show more favorable projected rates.

In an attempt to then wrangle in those illustrated rates, AG 49-A was created and put into effect in 2020. Yet, many feel AG 49-A didn’t go far enough and is also getting loopholed by insurers. In response, the industry is now discussing a draft form of AG 49-B.

Here are some additional ways IULs can fall short:

  • Interest crediting on cash value can’t be less than zero, but policy fees and expenses can still diminish cash value.
  • The levels of interest that will be paid (as determined by a combination of a participation rate, cap, spread and/or bonus) on a policyholder’s cash value can be decreased during the life of the policy, albeit within the bounds contractually agreed to within the policy.
  • While the last decade was near optimal conditions for high IUL interest crediting (i.e. high stock market returns and relatively low stock market volatility), it’s widely believed that market conditions will not be nearly as favorable over the next decade.
  • Interest rates have since increased markedly from their historic lows, driving up the cost of taking loans against IULs. This can further compound decreases in cash value, particularly when interest credited to the cash value is low or zero. For example, this recent Wall Street Journal article sheds light on how the market conditions of 2022 — poor stock market returns and dramatically higher interest rates — have led to very unwelcomed and unexpected outcome in many IUL policies
  • The ultimate backstop preventing an IUL policy’s catastrophic collapse — overloan protection riders — isn’t bulletproof. Many such riders have 10 or so bullet points of conditions that need to first be satisfied for the protection to be invoked.

Don’t misunderstand me

Whenever I discuss the above concerns with those who sell IULs, I’m routinely given the same general response: I don’t understand how to properly structure them, I’m biased against them because I don’t sell them, and I choose to “denigrate” them instead of learn more about them.

To be clear, I don’t think I’ve ever said IULs are a bad product. They’re not. Like any product, they have their use cases and they have their pros and cons. What’s bad is how they’re often misrepresented and mis-sold.

“But, at least in my experience, IULs seem to be one of the products that are the most consistently sold with an overemphasis on what can go right without giving enough attention or warning to what can go wrong.”

Similarly, some products can end up doing better than originally expected, and some can end up doing worse. IULs are no different. But, at least in my experience, IULs seem to be one of the products that are the most consistently sold with an overemphasis on what can go right without giving enough attention or warning to what can go wrong. Such as calling them “can’t lose money assets” or saying they are “NO risk.”

How I’m testing my skepticism

I fully admit I don’t know every possible thing to there is to know about IULs. But I know I understand them very well. Based on that understanding — and without it being washed over by the inherent bias I would have if I were to make a living selling IULs — I have a non-trivial amount of skepticism that even the most properly structured, most fully funded and most properly managed IUL can still eventually fall noticeably short of initially illustrated projections and expectations.

With that said, instead of continuing to have exchanges with IUL salespeople that start off cordially and turn into debates — and then into arguments in which they eventually call me names — I decided the only way to test my skepticism about IULs sold as LIRPs was to buy a policy for myself. So, I did. And it will require me paying more than $50,000 out of pocket.

Furthermore, in the name of wanting this all to be fully transparent and educational for the public so the world at-large can hopefully learn more about IULs and how they work, I decided to make the entire policy (excluding sensitive personal information) fully available for everyone to see.

Additionally, I’ll be sharing with the public updates of how the policy performs over time relative to its initial illustrations, how its terms and conditions change over time, etc. Ultimately, my goal is to see how this particular properly structured and maximum-funded IUL designed to be used as a LIRP plays out over time.

Will it perform as originally illustrated? Will it perform better? Worse? We shall see.

I’m calling the chronicling of my policy “The IUL Experiment.” I created, which has freely downloadable PDFs of all policy documents. I also have posted articles explaining the basics of IULs and LIRPs. I’ll soon be adding videos to further discuss IULs and the background of the experiment, to walk through all of the policy documents and all of the content on their dozens of pages, etc.

Furthermore, this experiment has already garnered a lot of attention from people in various areas of the industry who have graciously volunteered their time and expertise to help by being guests on future videos or writing articles for the site.

I figure this experiment is a win-win regardless of its outcome. If my skepticism ends up correct and my policy falls noticeably short of expectations, at least people will have learned a lot about IULs and how they work by having followed along with this decades-long initiative. Or, if the policy ends up performing as projected or better, then good for me (and my policy). And again, good for everyone who followed along and learned from it!

Andy Panko, CFP, RICP, EA, is the owner of Tenon Financial, a fee-only firm in Metuchen, N.J., that provides tax-efficient retirement planning and investment management. He’s also the creator of, which contains the Retirement Planning Education podcast, YouTube channel, Facebook group, blog and dozens of freely downloadable guides and references











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