There is a somewhat alarming trend in the advisory community of promoting Long-Term Care (LTC) or Chronic illness riders on Indexed Universal Life (IUL) or Variable Universal Life (VUL) Insurance products and calling it Long-Term Care Planning.   

While these policies may seem like a good way to address various needs simultaneously, the reality couldn't be further from the truth, as this approach is usually misleading and poses significant risks to unsuspecting policyholders, their families, and beneficiaries.

IUL and VUL insurance policies are often marketed for their potential to achieve many objectives.  Unfortunately, most advisors don't run illustrations or truly understand them, so they don’t disclose the lack of premium and death benefit guarantees inherent in these products.  This absence of guarantees exposes policyholders to financial uncertainty, especially when these policies are "sold" to be their LTC Plan.  The primary flaw in using IUL or VUL insurance for LTC Planning is the absence of a secondary, lifetime death benefit guarantee.  

Before Universal Life (UL), IUL or VUL, "Whole Life" Insurance was really the only life insurance option, and it was a pretty straightforward concept: Pay a guaranteed premium to provide a guaranteed death benefit, where the guaranteed cash value equaled the death benefit at age 100.  The introduction of UL in 1979 created the basic chassis that most IUL and VUL products are built on today, touting better flexibility to take advantage of the higher interest rates in the 1980s than "antiquated" whole life insurance……ushering in the fiction of the life insurance illustration.  With low premiums, sky-high cash accumulation projections, withdrawals/loans for tax-free income, etc, Universal Life was IT baby!!    And then interest rates collapsed……

Forty years later, it looks like the same bad movie.  IUL and VUL insurance policies are sold without the crucial safety net of guaranteed premiums, death benefits, and cash value, as many are lured by the promise of higher potential returns through market-linked investments but don't comprehend the performance limitations or inherent risks.  Consequently, policyholders are left vulnerable to the whims of insurance carriers, market fluctuations, and economic downturns without guaranteeing the intended financial benefits as marketed or sold.  IUL and VUL insurance products have become even more complex, leading to confusion and misunderstanding among policyholders.  In the context of LTC Planning, where stability and predictability are necessary, allowing clients to rely on products is nothing short of reckless.

Another concerning aspect of IUL and VUL insurance is the lack of transparency regarding fees and charges.  These policies often come with hidden costs, including management fees, administrative expenses, and surrender charges, that can significantly erode the policy's cash value over time.  When coupled with the absence of premium and death benefit guarantees, policyholders may be unable to access the promised benefits when they need them to cover LTC expenses.

It's simply not in a client's best interests, even a deceptive scheme, to promote or market LTC planning using any life insurance solution without secondary guarantees, as LTC Planning requires the reliability of insurance products and the guarantee that benefits are available when needed.  Most Indexed and Variable Life Insurance products do not and cannot meet this threshold.   Advisors should know better!

Consumers must exercise caution and due diligence when approached with IUL and VUL insurance products claiming to solve all their retirement needs….Plus a snappy rider for LTC expenses.  Instead of falling prey to misleading promises and risky investment schemes, consumers should seek advisors and solutions prioritizing transparency, reliability, and certainty above all else.  

The future financial security of a client and their loved ones depends on making informed decisions based on facts, not fiction.

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