State regulators and financial consumer advocates are intensifying their scrutiny of indexed universal life insurance products following a wave of complaints about misleading sales illustrations. The North American Securities Administrators Association has issued a joint alert warning consumers that projected returns shown in IUL policy illustrations often bear little resemblance to the actual performance policyholders experience over time.
At issue are the complex crediting mechanisms that link IUL cash value growth to stock market index performance. While sales materials often highlight double-digit illustrated rates, the actual credited rates are subject to caps, participation rates, and spread charges that significantly reduce returns. A recent actuarial study found that the median actual return on IUL policies over the past decade was 4.8%, compared to an average illustrated rate of 7.2%.
Several class-action lawsuits have been filed against major IUL carriers, alleging that agents used unrealistic assumptions to project retirement income that policyholders will never achieve. The National Association of Insurance Commissioners is considering tightening illustration regulations to require more conservative assumptions and clearer disclosure of the factors that can reduce policyholder returns.
