I hope everyone is gearing up for a fun Halloween night! In my neighborhood the kids did their trick-or-treat rounds on Wednesday as substantial rain was expected for today although that didn’t materialize: the rain stayed away, although it’s chilly and windy. It looks like the annual parade through town (which is a sight to see) will go off without a hitch.

This holiday is one of scares and surprises and, in light of that, I’ll make passing reference to the news that NASCAR star Kyle Busch and his wife have filed suit over their experience in owning an indexed universal life (IUL) policy; they allege they lost $8.5 million. Lately there has been much chatter on LinkedIn regarding this. Not surprisingly, none of the articles I’ve read get into the particulars of what “went south” with the product.

It sounds to me like Kyle and Samantha were given a pitch I have often heard often on social media: that IUL owners can grow their assets tax free, take income tax free through policy loans and later transfer wealth to heirs via the death benefit. The tax-free income aspect is the major hook, I think, what makes it preferable to the traditional income product, the annuity (since annuitizations and withdrawals are taxed as ordinary income).

At present, I won’t argue for or against the IUL being used for income, rather simply point out that even advocates of the approach admit that for it to work, the policy must be funded properly and monitored regularly. On one YouTube video I watched, the presenter disclosed that in the scenario he was illustrating, the death benefit option would have to be changed later on. It seems to me there is much margin for error with these structures.

I’ll say we have a cautionary tale here. At the very least since many, if not most, industry players sell both annuities and IULs, I think going forward there will be more dialogue as to why a client should pick one over the other, for the purpose of retirement income.