Illustrated rate versus what actually happens: how to show IUL without overselling it

The IUL complaint files all start the same way: the illustration showed one number and the annual statement showed another. Here is how agents who keep clients for twenty years present the product.

Run three columns. The max illustrated rate the regulation allows, a middle rate, and a low rate around 4 percent. Put them side by side. The client should see that the policy works at the low rate and works better at the higher ones. If it only works at the max rate, it's overfunded on hope and you should redesign it.

Explain the cap and the floor in one sentence each. The floor means the credited rate can't go below zero in a bad year. The cap means the credited rate can't go above a set number in a good year. Then say the part that gets skipped: the cap can be lowered by the carrier, and it has been on many older policies.

Costs go up. Cost of insurance charges rise with age. In a policy that's underfunded, those charges eat the cash value in the later years and the policy can lapse. Show the year the charges cross the credited interest on the low-rate column.

Loans are not free money. A participating loan at a fixed rate is not a wash. Show what a $30,000 loan at 65 does to the death benefit and to the lapse risk at 82.

Design for the client, not the illustration. Minimum death benefit for the premium, maximum funding under the MEC line, and a premium the client can actually pay for fifteen years. The best IUL sale is one that's a little boring.

What rate are you using for your middle column, and has your carrier lowered caps on in-force policies this year?