Why This Life Insurance Policy Often Gets a Bad Rap… and How The Wealthy Use It Differently

by / ⠀Featured / June 27, 2025
Why This Life Insurance Policy Often Gets a Bad Rap… and How The Wealthy Use It Differently
Why This Life Insurance Policy Often Gets a Bad Rap… and How The Wealthy Use It Differently
If you’re familiar with indexed universal life (IUL) insurance policies, you’ve almost certainly encountered a mixture of myths and truths. IULs are frequently misunderstood due to improper structuring and outdated perceptions. As a result, many consumers are taught to avoid these products. High net worth individuals and families, however, have a less familiar strategy for using IULs that make them an important piece of their wealth growth and protection plan.

Why The Misconceptions Around IULs?

First and foremost, many individuals holding IUL policies have a policy that is not property structured for their personal financial objectives. According to Rob Graham, CEO of Wealth Express, which connects individuals with IUL advisors, “The improper structuring of IUL policies by less experienced advisors stems from a fundamental misalignment between traditional insurance training and the wealth-building mechanics of maximum-funded IULs.”  Traditionally trained advisors are focused on maximizing the death benefits of IULs, which generates higher commissions but creates inefficient conditions for wealth accumulation. This approach conflicts with the max-funded IUL strategy, where cash value growth is the priority. The disconnect between advisor training and your goals can result in policies that are expensive. While they usually provide sizable death benefits, you’ll miss out on the flexible wealth-building opportunity IULs offer. By contrast, optimized indexed universal life insurance policies minimize death benefits to comply with IRS rules while directing more premiums to cash value. Less experienced advisors often use outdated setups or fail to navigate complex tax regulations. The result is suboptimal outcomes for the client.

Telltale Signs That Your IUL is Wrong For You

“Identifying a suboptimally structured IUL policy requires understanding several key indicators that reveal whether your policy was designed for maximum cash value growth or for traditional insurance purposes,” says Graham. You can identify a poorly structured IUL by looking for a few red flags. One of the most notable warning signs is a cash surrender value below 60%–70% of first-year premiums. Such a structure creates excessive costs for you. A death benefit exceeding 12 times the annual premium suggests over-insurance. Missing paid-up additions or an overloan protection rider are other indications of inefficiency you need to be aware of. A break-even point beyond year seven or unrealistic return projections can also reveal high internal costs. These issues could cost you hundreds of thousands in lost growth over decades. When this happens, it reinforces myths about IULs being ineffective. 
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What To Know If You Are Considering an IUL

When your indexed universal life insurance policy is structured correctly, you’ll enjoy market upside with a 0% floor and tax-deferred growth. You’ll also have flexible access to the cash value of your IUL. You can use your indexed universal life policy to finance purchases, fund your children’s education, or supplement your retirement income. By working with professionals who know how to structure your IUL in a compliant and creative way, you can avoid the pitfalls outlined here and realize the full potential of indexed universal life. You need a provider who actively manages your plan, ensuring compliance with IRS rules while working to maximize the cash value of your policy. This approach can turn your IUL into a powerful wealth-building tool that will be there for you throughout all stages of life.

Find a Trusted Advisor

Before implementing a plan, ask detailed questions about your projected break-even timetable. You should expect realistic but strong return projections. If the numbers or costs of your IUL seem inefficient, dig deeper to make sure the advisor knows what they’re doing. Otherwise, you could be sacrificing countless thousands in cash growth.  If you’re interested in learning more about indexed universal life insurance plans, start by finding the right team to structure your IUL. The ideal partner will have a team of experienced advisors who specialize in structuring indexed universal life policies to increase their clients’ wealth-building potential.  

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About The Author

Brianna Kamienski is a highly-educated marketing writer with 4 degrees from Syracuse University. With a comprehensive understanding of communication theory, she's able to craft meaningful work that conveys what clients want to say to their clients. Brianna is the proud mother of two boys, Chase and Cooper.

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