In an April 4, 2014 article in The Wall Street Journal (“The Great Life-Insurance Temptation”), customers are warned that they “could be in for a shock” as a result of the correlation between specific life insurance policies and the stock market.
The life insurance policies that are the focus of this article are the “variable universal life insurance” policy and the “indexed universal life insurance” policy.
A variable universal life insurance policy, often shortened to VUL, is a type of life insurance policy that purports to build cash value for the customer. Insurers typically offer a menu of investment options for these policies that often focus on stock and bond mutual-fund investments which, in a declining investment market, may not generate enough income to cover the annual fees.
A indexed universal life insurance policy is also a type of life insurance policy that is typically linked to stock market indexes such as the S&P 500 benchmark index. Insurers typically offer a cap on the maximum returns that can be earned through such policies while, at the same time, limiting their downside. Unfortunately, the value of these policies can still decline in value because of the fees and insurance charges that are associated with them.
As noted in the article, insurance agents and brokers can collect “rich commissions” for selling both types of policies which may provide a “powerful incentive” for the inappropriate promotion of both products. Furthermore, the marketing materials for these policies may “feature rosy projections of potential gains” that, based on historical stock market returns, do not “match reality.”
If you are an institutional or retail investor and believe you may have been misled regarding either a variable universal life or indexed universal life insurance policy, please contact us. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).