Being pitched index universal life insurance at an MLM seminar

So I recently got into a long winded debate about the merits (or lack thereof) of Index Universal Life Insurance, “IULs” for short. This debate involved myself against 3 life insurance agents who were pitching IULs to a larger audience. It was quite entertaining (for me anyway).

Their pitch on “IULs” are essentially the following:

• Index universal life insurance are polices which offers the holder the opportunity participate to see their “policy appreciate” by investing in the stock mark , this is called “cash value”.
• Index universal life insurance is advantageous to term life insurance because you’re “not throwing the money away” with a death benefit that expires at a predefined point in the future.
• Index universal life insurance offers offers “asset protection” and “tax sheltered” investing traditionally available only to the wealthy.

Every time I hear this pitch I gag. I become angry, filled rage that life insurance agents can peddle this nonsense and get away with it. If you’ve ever been asked by a distant friend/cousin/former colleague to attend a “seminar” on an “amazing opportunity” to “change your life” from Transamerica, Primerica, World Financial Group, this is the product you’re being ask to sell: index universal life insurance.

For those who want a TL/DR one sentence take away: Buy term life insurance and invest the difference.

Before we divide into the actual conversation, let’s answer the following question:

What is index universal life insurance?

Imagine if opened a savings account at your bank and contributed $500 a month for 36 months. At month 36 you goto your bank to withdraw your $36,000 and the teller says “your balance is zero sir”.

You try to cancel your account, but you realize your “cash value” is $0, but you have a $1 million dollar death benefit. Furthermore, you’re also told that “buying an IUL is a wise investment because it provides a floor to minimize your losses in the stock market”.

So you play ball and keep making $500 a month payments in perpetuity to take advance of that sweet sweet protection, cash value, and death benefit. So now you’re 15 years out, you’ve contributed $90,000 ( $500 x 12 months x 15 years) to your IUL, but the cash value is < $90,000.