WSJ Article

As we’ve been talking about for months, the new EIUL illustration regulations are going to have a major impact on how EIUL policies are sold. We believe the new regs were needed to curb abuses like IRA rescue (, but the ones that are going into effect will make it very difficult for advisors to figure it out which policies have the best design.

The need for a good IMO (sort of an oxymoronic statement) will be critical for agents who want to offer the best products to their clients. It will make the need for education on EIUL even more important which is why this web-site was created.

If you want to be educated on EIUL Policies, e-mail to setup a time to discuss the benefits of working with an IMO that both educate you and will always put the client first when helping you select the best products.

The following article was just published by the Wall Street Journal. It’s interesting reading and should remind advisors that others outside of the insurance industry are watching what’s going on when it comes to illustration abuses.

A Dose of Reality for a Hot-Selling Insurance Product
The Wall Street Journal

Regulators limit what gains insurers can cite for ‘indexed universal life’ policies

By LESLIE SCISM Updated July 6, 2015 11:06 p.m. ET

Come Sept. 1, the marketing pitches for one of the hottest life-insurance products might become a lot less enticing.

The product, called indexed universal life, relies on investment gains based on stock-market indexes. The policies promise annual interest based on formulas pegged to stock indexes.

But a fight had broken out between life insurers that promote the policies and others that consider the policies too risky for people who need life insurance. After lengthy debate, state insurance regulators last month adopted a new guideline for marketing material used by insurers and agents. A key feature now is a limit on the annual investment gain that can be used to illustrate a policy’s potential performance.

Sales of indexed policies grew 23% last year by a key measure of premiums, the strongest growth of any type of individual life insurance, according to Limra, a research trade association for the financial-services industry. Premiums from indexed universal life now represent one-fifth of all new individual life-insurance sales. In contrast, overall sales of individual life insurance—including combination savings-and-death-benefit policies with interest linked to insurers’ bond-heavy investment portfolios—grew just 2% in 2014.

With the indexed universal-life policies, insurers pay interest into the policyholder’s tax-deferred account with formulas tied to the performance of stock indexes, often the S&P 500, up to a specified cap. At the same time, the policies come with protection from market losses.

Currently, many insurers use annual interest of 8% to 10% a year in the “illustrations” that agents give consumers to show how the indexed product works, according to industry executives and financial advisers. The policies have multiple moving parts: The buyer pays an annual premium into the policy, the insurer deducts money for expenses including the annual cost of the death benefit, and the remainder of the premium stays in the policy earning interest.

Under the guideline adopted by the National Association of Insurance Commissioners, an insurer with a typical version of an S&P-500-linked product would be limited to about 7% in projected annual interest, officials and executives said. The association’s guidelines are used by most states across the U.S.

‘Reputational risk’

“We applaud the NAIC for taking up the issue of current abusive marketing practices,” says Lawrence Rybka, president of Valmark Securities, a securities and insurance brokerage based in Akron, Ohio. If not addressed, consumers stood to be harmed and the industry faced “reputational risk as a whole.”

As stocks rallied in recent years, indexed universal life gained popularity—and drew public criticism from some leading insurance companies that don’t sell the policies. Critics have included MetLifeInc. and New York Life Insurance Co.

Lackluster gains could have major effects on consumers, because universal-life policies of all sorts (not just the indexed ones) typically are sold on the assumption that accumulated interest will pay for some or all of the future annual cost of keeping a policy in force.

So, if interest income falls short, policyholders could be forced to find other money to cover the annual expense—or possibly even lose the policy. Under many policies, the annual insurance charges can rise sharply as the policyholder ages, reflecting the person’s rising odds of death.

Indexed policies have gained traction in part because low interest rates can make conventional bond-based policies a tougher sale given the relatively slow interest buildup.

‘Right balance’

The regulators’ swift action in the matter is a signal of the dangers of too-optimistic illustrations. “As an industry, what’s most important is that we not lead consumers to disappointment,” says Randolph Clerihue, a MetLife spokesman. “The new rules strike the right balance between providing companies flexibility while appropriately setting consumer expectations.”



Joe Kordovi, an assistant vice president in a product-design division of Pacific Life Insurance Co., a top seller of the policies, says the insurer helped to develop the new guideline. It “will benefit the industry by bringing consistency to the way [the policies] are illustrated in a manner that helps our industry better manage client expectations.”

Eight consumer advocates, including Indiana University Professor Emeritus of Insurance Joseph Belth, backed the guideline as a first step because of the current “potential for severe misrepresentations to consumers” from illustrations with “unrealistic returns,” in some instances topping 10% a year, according to comments submitted to the regulatory group ahead of its adoption of the guideline.

Other marketing-material changes, effective March 1, will include a required table showing the best and worst 25-year historical returns calculated in setting the maximum illustration rate. The aim “is to ensure clients understand that crediting rates will be variable from year to year and not level as the basic illustration suggests,” says Mr. Kordovi.

Ms. Scism is a news editor for The Wall Street Journal in New York. Email her at