Ethical practices for marketing and selling IUL

Indexed universal life insurance has continued to generate interest over the last decade as consumers seek principal protection and investment-linked growth potential in an uncertain equity market environment. Most recently, LIMRA reported that new IUL premiums shot up 31% in the second quarter of 2025, reaching $1.2 billion.

The popularity can largely be attributed to IUL’s hybrid functionality, the release of new and enhanced products, innovation in tools that simplify the sales process, and an expanded distribution approach from insurers. However, critics point to unethical or misleading marketing tactics that inflate the application numbers to the detriment of beneficiaries.

It’s our duty to disprove this negative perception by adopting the best ethical practices when marketing or selling IUL to our clients.

Addressing the problem of IUL complexity

The growing demand for IUL products has attracted the attention of some less-than-scrupulous actors, who have aggressively marketed IULs with less-than-accurate messaging that doesn’t adequately inform consumers about the potential risks or downsides.

The truth is, IULs are complex products that can’t be adequately explained in catchy sales pitches or unrealistic illustrations. Some agents and brokers have used these dubious tactics to market IUL as a “one-size-fits-all” solution to reliable retirement income, with upside potential and no risk of losses.

However, these overly simplified projections and illustrations can be misleading or downright deceptive if not presented with complete transparency and realistic expectations. Many clients mistakenly believe these optimistic illustrations represent a guaranteed return or may agree to complicated premium financing schemes they don’t truly understand.

Policyholders can be left in a worse financial position when those high expectations meet reality. They may contribute to the many lawsuits seeking damages against unethical producers and insurers. It’s no surprise that this bad publicity has attracted increased regulatory oversight, especially regarding fees, illustrations and interest crediting. For example, the National Association of Insurance Commissioners’ updated AG 49-A guidelines cap IUL projections at around 6%-7%, pushing carriers to stick to realistic scenarios in their illustrations.

Leading with ethical considerations

Changing this negative perception requires us to commit to transparency, full disclosure and a client-centric approach. Here are some key ethical factors that should lead your IUL sales and marketing activities.

• Policyholder suitability: Understanding your audience is crucial to ethically selling IUL. Not everyone needs permanent life insurance. Although IUL is often marketed as a retirement income solution, it may work best for younger, healthier clients with a longer time horizon. It can still be a retirement vehicle, but it should be built into a more comprehensive financial plan. Engage in detailed discussions to assess your clients’ goals. Don’t be afraid to have conversations that might disqualify IULs from being the right recommendation.
• Full disclosure: Agents must clearly explain all fees and limits associated with the IUL policy. Although IULs offer a 0% floor to protect from losses, they also have restrictions on their upside potential, such as caps or participation rates. Be sure to fully disclose all information on these limits or additional fees. Transparency about these costs helps clients understand the actual cost of the policy up front.
• Realistic expectations and illustrations: When using IUL illustrations, be conservative with the premiums and rates you use, especially for clients concerned about price or affordability. Agents should focus on setting realistic expectations, especially regarding premium payments and index history or performance. It’s crucial to emphasize that illustrations are not guaranteed, and results may vary.

Three steps to a more ethical IUL sales process

The following are common sense and practice for most agents, but not all.

1. Assess the value: The first step of a compliant and ethical IUL sale is a thorough suitability assessment and client intake process. Dive into client-focused conversations to gather information on clients’ goals and risk tolerance. You can only properly assess the value of IUL policies for their unique circumstances by understanding their holistic financial planning needs.
2. Explain the details: Transparency is key when selling IULs ethically; often, the devil is in the details. Agents should present a comprehensive analysis of policy factors, not only the ones that sound attractive to consumers. These include cap rates, floor rates, participation rates, surrender fees and other associated costs to ensure clients can make informed decisions and won’t feel deceived down the road.
3. Reinforce realistic expectations: Agents should set clear expectations regarding premium payments, market performance and growth potential throughout the sales process. Using conservative projections and avoiding sales-oriented jargon will help manage policyholders’ expectations.

The future requires transparency

As the industry and regulatory landscape evolve, the immediate future of IUL sales is still projected to be bright. However, in the long run, the success and reputation of IUL products will depend on the transparency and ethical practices.

That means we can make all the difference. Embracing these best practices will benefit us individually as trusted financial professionals, while giving a more positive impression on our entire industry. Doing it the right way will lead to better future client outcomes.

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