Kyle Busch Case: A day of reckoning for indexed universal life?

Lawsuits by disgruntled customers unhappy with the performance of their indexed universal life policy are nothing new. Insurance company defendants often allege greedy attorneys and overreaching clients before settling, usually with terms under seal.

But a new complaint from race car driver Kyle Busch and his wife, Samantha, is something else entirely.

For starters, it’s Kyle Busch – a longtime star on the NASCAR Cup Series with 746 career races and 63 wins in 22 years. Busch, 40, won the 2015 and 2019 Cup Series championships.

The Busches are high-profile people. And they are angry policyholders.

“We’re going to show the world that this was a huge and utter scam,” Samantha Busch said in a video the couple widely shared on social media.

Filed in Lincoln County, N.C. state court, where the Busches live, the complaint accuses Pacific Life Insurance Co. and its appointed agent of designing and promoting a series of complex IUL policies as “tax-free retirement plans” that were misrepresented as safe, self-funding investment vehicles.

According to the filing, the defendants used misleading illustrations, undisclosed costs, and false promises of guaranteed multipliers and controllable charges to induce the Busches to pay more than $10.4 million in premiums, resulting in net out-of-pocket losses exceeding $8.58 million.

A PacLife spokesman said the company has been in touch with the Busches and their attorney, Robert Rikard of RP Legal.

The rest of the PacLife statement: “We stand by all our life insurance products, including Indexed Universal Life (IUL). An IUL policy provides valuable life insurance protection, helping ensure that families and other beneficiaries receive financial protection in the event of an unexpected or premature death of a loved one. IUL also offers the opportunity to build cash value over time, which may be accessed for a variety of purposes, including supplementing retirement income.

It is important that individuals work with their financial professionals to help ensure their intended insurance needs and financial objectives are met.”

Since the lawsuit was filed two weeks ago, the industry has not stopped buzzing with speculation about the potential impact. There is no precedent for someone so famous going after a life insurance company over an underperforming IUL product.

“I’m excited by this, and I’m hurt by this,” said Matthew Decker of Leveraged Wealth Management. “I’m excited because someone like Kyle Busch is going to be able to help us change this industry.”

In a YouTube video discussing the case and its impact, Decker acknowledged how unusual the lawsuit is for the industry.

“I’m kind of shocked that Kyle Busch is calling out a company by name,” he said. “That makes me think he’s not scared.”

The trouble with IUL

If sold ethically, most insurance professionals say IUL is a good fit for some clients. Unfortunately, IUL sales are often accompanied by misleading sales practices, complex fee structures, and performance that often falls short of the optimistic projections presented to consumers.

Critics argue that IULs are often mislabeled as secure retirement “investments” when they are, in fact, complex insurance products that transfer significant risk to the policyholder.

Victims of IUL schemes often discover years later that the “guarantees” and illustrations they were shown were based on assumptions that could never be sustained, Rikard said. By then, escalating policy costs and vanishing cash values have erased years of savings.

Product problems are exacerbated by insurance producers who don’t understand what they are selling, Rikard maintained.

Some IUL policies “combine moving parts that even seasoned professionals struggle to understand, including derivative-based crediting formulas, options budgets, participation rates, cap rate adjustments, and internal policy charges that shift over time,” Rikard said. “Agents with minimal training are peddling these as simple, safe, tax-free retirement plans they barely understand themselves.”

Kyle Busch explained that he was assured that by contributing a million dollars annually for five years, he could withdraw $800,000 per year starting at age 52. Instead, he discovered his funds were being directed to the insurance company’s account rather than being invested in the market, preventing his investment from growing as markets rose.

“I never thought something like this could happen to us,” Kyle Busch said. “These policies were sold to us as part of a retirement plan, something safe and secure that would grow tax-free and protect our family long after racing. We trusted the people who sold them and the name Pacific Life. But the reality is far different. What was pitched as retirement income turned out to be a financial trap.”

‘Stonking’ death benefit

What has many industry folks stunned is how a policy could be constructed to cause the loss of $8.5 million on $10.9 million of premium paid over just seven years.

In a commentary on the Busch lawsuit, longtime life insurance executive, consultant and writer Bobby Samuelson points to the “stonking $44.5 million death benefit” as a defect. The huge death benefit led to enormous cost-of-insurance charges, plus a ballooning commission for the agent, wrote Samuelson in his Life Product Review column.

Larry Rybka began speaking about IUL construction problems as early as 2019. Chairman and CEO of Valmark Financial Group, Rybka is particularly annoyed by premium financing IUL, whereby premiums are financed through bank loans and interest rate changes can leave policyholders upside down.

“Life insurance is such a good product that benefits consumers, and a small group of greedy agents may ruin it for everyone,” Rybka said.

The case is a huge liability for IUL sellers, Rybka added.

“I think any search on ChatGPT or Google of IUL will bring this case to the top of the list,” he said. “No videos of a TikTok guy selling IUL, or the premium finance guy in the expensive suit who pulls out a hundred spreadsheets, will overcome this. Consumers are now better aware that these plans don’t work.”

Teaming up to reform IUL

Although they are competitors, Samuelson and Sheryl Moore, founder of Wink, Inc. and Moore Market Intelligence, joined forces in 2022 to author a letter to the National Association of Insurance Commissioners on the regulation of IUL.

The letter commented on Actuarial Guideline 49-A, one of several actions regulators have adopted to rein in IUL illustrations. Adopted in late 2020, AG 49-A barred IUL designs with multipliers or other enhancements from illustrating better than non-multiplier designs.

The Moore/Samuelson letter argued for more significant regulatory action, which has yet to occur. Some IUL fixed interest bonuses can generate illustrated income more than 60% higher than a base index such as the S&P 500, they wrote.

“This is, in our view, entirely inconsistent with the intent of regulators in crafting AG 49-A,” the letter reads. “The gamesmanship currently occurring in illustrations is similar in effect and pervasiveness to the buy-up caps and multipliers that proliferated after AG 49 and resulted in AG 49-A.”

Since then, regulators adopted AG 49-B, which further attempts to restrict the maximum illustrated rate on IUL policies.

The Busch case might end up doing more to change the IUL game than anything regulators are doing.

“This [lawsuit] is the impetus of change in the indexed life insurance market,” Moore said. “If the case doesn’t get settled, and soon, there will be meaningful changes ahead.”

But whether the Busches even want to settle is an issue in itself. During their public campaign in support of the lawsuit rollout, the couple mentioned “teachers, police officers, veterans, widows” who have been shortchanged by IUL investments.

“Kyle and Samantha Busch are determined to use their experience and platform to shine a light on an abuse that happens every day to ordinary consumers who do not have the resources or ability to fight back,” Rikard said. “Their goal is not only to recover their own losses but to expose how systemic and damaging these misrepresentations have become.”

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