Passionate pitches to invest for retirement through life insurance might be the last thing you’d expect to attract buzz on a social media app popular with people in their teens and twenties. Yet an insurance agent is racking up millions of TikTok views with his video pitches to use tax-sheltered life insurance to create a super-charged retirement plan.
Curtis Ray, CEO of SunCor Financial, sells a proprietary program to use universal life insurance to create retirement income that he claims can yield up to 10 times as much as if you invested the same amount in a taxable investment account.
As with much influencer content on social media, Ray sells his plan -- which he calls MPI, for Maximum Premium Indexing -- with high-flying rhetoric. “It’s a huge jump in the evolution of personal finance,” Ray said of MPI. “It’s a bigger jump than the iPhone from Blackberry or Netflix from Blockbuster.”
Though he’s not above posting the likes of handstand contests with his daughter, most of Ray’s TikTok videos feature him delivering high-speed explanations of his plan, often punctuated by the catch phrase “always be compounding,” which refers to his scheme’s emphasis on the power of compound interest.
He actively responds to comments, both from supporters (“Insurance investments all the way!”) and skeptics (“Sounds like a Ponzi scheme…”), often inviting the latter to ask him questions (“The more you know, the better your investment decisions!”).
Is Ray selling sound advice? On the whole, experts are dubious. Here’s an explanation of Ray’s strategy and how the claims stand up. I also add my own take as a long-time life insurance agent.
Universal indexed life insurance explained
Ray’s investment vehicle of choice, known as indexed universal life insurance, is nothing new; consumers have been using this form of permanent life insurance for nearly 25 years.
Indexed universal life insurance (or IUL insurance) is not simple, and you need to understand how it works in order to grasp Ray’s approach to exploiting it.
Like other forms of permanent life insurance, such as whole life insurance, universal life insurance is designed to cover you for your entire life. In addition to its death benefit, the policy contains a cash value account that you can fund with monthly or annual contributions. The cash value pays for policy fees and cost of insurance. Excess cash, after policy expenses, may earn interest.
Three other aspects of IUL policies are important to know:
You can borrow money from the cash value
The money in the policy’s account grows deferred from tax, meaning you don’t have to pay capital gains on its growth every year. You can also borrow money from the account without paying taxes. This is not unique to UIL but it is especially important to understanding Ray’s approach.
There’s essentially no limit to the amount you can put into your account -- unlike, say, the IRA’s $6,000 contribution limit per year. You also won’t be penalized if you pull your money out before age 59 ½.
Funds that are actually withdrawn from the policy are taxed like regular income. But if you instead borrow from the balance, you access the cash without any tax burden. You are, however, charged interest on the loan.
Earnings are tied to a stock market index
Typically, the plan looks at a major index like the S&P 500 or Russell 2000 on an annual “point-to-point” basis. If the index increases, your account does too, but you earn only a portion of the increase. Gains on the index are multiplied by what's known as a "participation rate" seat by the insurance company, which typically ranges from 25% to 100%. So if the fund gains 8%, the participation rate is 50%, and you have $10,000 in the account, you'd earn $400 -- half of the fund's gain, or 4%, times the balance of $10,000.
At worst, the account doesn’t grow in value
In a down year, most plans have a 0% floor, so the account stays flat. When the stock market increases, your account gets to participate in its gains. But if the stock market goes down, you don’t lose a dime.
Drawbacks to combining life insurance and investment
Alluring as those features may sound, universal indexed life -- indeed, any product that combines insurance and investment -- comes with disadvantages.
Among them are premiums that are high -- far higher than, say, for term life insurance with the same death benefit. Also, indexed universal policies have those participation rates that limit what the policy’s investments can earn. If your goal is to aggressively accumulate a hefty balance, limits on annual gains can be a drag on those dreams, especially during a strong bull market.
Pros and cons of universal life insurance
|Your policy’s cash value depends on the market index||If market rates go down, there will be little to no cash value accumulation|
|You can access the cash value through withdrawals or loans without the risk of damaging your credit||The policy will lapse if there isn’t enough cash value in the account and you fail to pay the premiums|
|The interest your account generates is tax-deferred||Premiums are considerably higher than for most other types of life insurance|
|You can change premium payments, death benefit amounts, and coverage amounts at any time||You have to manage and monitor your policy|
Also, for two further reasons, I’ve generally counseled my own clients against permanent life insurance such as universal life policies.
First, they lack the employer match that helps make the 401(k) such a compelling retirement vehicle. Additionally, in my experience people rarely fund their insurance policies with the prudence that is required to achieve their full growth potential. When people fall on hard times or life just happens, their insurance payments tend to be one of the first things to go.
Since the cost of insurance and fees get drawn from the policy’s cash value account, neglecting such payments for too long can deplete the cash value entirely, and cause the policy to lapse.
How Ray's MPI plan tweaks Universal Indexed Insurance
Ray’s methodology makes a few key adjustments to the typical indexed universal life insurance plan that helps address some of these comparative disadvantages.
First, he reduces expenses in two ways. He says he earns only about a third the commission that most agents do. His policies also use an increasing death benefit structure, so that fees based on the size of that benefit are minimized. The death benefit starts as low as possible and increases over time.
That sliding structure makes his policies poorer bets as insurance, but better ones as investments. And investment is the main purpose of his approach, as its main innovation makes clear.
The unique centrepiece of Ray’s strategy is what he calls RELOC, for Retirement Equity Line of Credit. It involves taking out a loan (with interest) every two years from your policy. The policy's cash value is used as collateral for the loan, and that value continues to earn interest.
The key to the success of Ray’s approach, he argues, is the spread between the cost of the loan and what the funds will earn in the investment account. The company that underwrites Ray’s plans currently charges 4% interest on the loans, but averages a 6.4% return on the investment account.
That creates a gain of several percentage points between what money costs to borrow from the policy's cash account and what the money makes in the investment account. Keep that spread going, and with compound interest over 20 or 30 years, Ray argues, and you wind up with some eye-popping numbers.
What the plan claims you can earn
Let’s look at an example of what Ray claims his approach can yield. According to his MPI Calculator, a 30-year-old who managed to sock away $10,000 per year in one of his policies, and follow the loan's drill, would amass a cash value of $2,386,700 in his policy at age 65. That would allow him or her to pull out $226,700 per year in retirement, and to have a death benefit of $430,000 to boot.
By contrast, using Vanguard’s Retirement Income Calculator, a 30-year-old who starts saving $10,000 per year and retires at age 65 would have an estimated retirement savings balance of $918,900, assuming an 8% annual interest rate. The calculator estimates you could safely take out 4% of your nest egg each year resulting in an annual income of $36,756. That’s nearly $200,000 less per year than Ray projects, and that’s without accounting for the additional bonus of a death benefit.
“Real estate investors do the same thing when they take an equity line out on their home and re-invest those funds into a property earning them more than what they’re being charged,” explains Ray. “We’ve just figured out a way to do that with life insurance.”
Analysts question the MPI math
Yet it’s what Ray sees as the key to MPI’s success -- the spread between borrowing from and earning within the account -- that’s at the heart of analysts’ skepticism about the strategy.
Brandon Roberts, a permanent life insurance specialist and Co-Founder of The Insurance Pro Blog, explains that the entire plan hinges on the insurance company keeping its cap rates around 9.5% or higher for MPI to work. The problem, Roberts says, is that such returns may be unrealistic, given the movement in those cap rates. He’s seen the rates fall on average from around 12% five years ago to 8% to 9% today.
“Curtis is illustrating a 6.4% average return based on current cap rates, which are at 10% right now at the company he uses, but there’s no guarantee they’ll stay there,” says Roberts. “Those caps could drop as low as 3%. If that were to happen long term, it could result in a lot of lapsed policies.”
Life insurance literacy advocate, Tony Steuer, echoes the same fears. “There’s just no way it’s sustainable,” says Steuer. “At the end of the day, the insurance company has to make a profit. If at any point they look at this and find it’s not profitable, they could lower the caps, increase policy fees, or increase mortality rates to skew the numbers in their favor.”
Also supporting that concern is Steve Parrish, Co-Director of the Center for Retirement Income at The American College of Financial Services. And Parrish adds that you’d have a further problem on top of going underwater on the policy loan if the earnings flattened: you’d still be on the hook for premiums to cover the death benefit.
The insurer, he points out, won’t waive those just because the investment earnings on the policy go south. “They’ll say: You're getting zero money on your account, yes we know, but we still have to deduct mortality charges because you could die this year.” And those would have to be drawn from the balance of the account, which could eventually lead to the policy “starting to run out of juice” and even lapsing if the cash value is fully depleted.
It’s true that to safeguard against lapsing the account, Ray’s strategy involves withdrawing only the earned interest on the cash value, leaving the principal behind to pay the premiums. That would reduce the chances of the policy lapsing, but not eliminate that setback; a sustained market downturn could eventually result in the principal being depleted.
Proceed with caution, if at all
From my perspective, I’m not positive the critics of MPI are entirely right, because I’m not convinced that cap rates will indeed drop much further. After all, insurance companies have their own funds that they must, for regulatory reasons, invest in bonds, on which their current returns are abysmal -- for example, 10-year treasury bonds are paying a paltry 1.6% right now. With such bond rates already so low, the likelihood of further drops that would prompt a reduction in cap rates on policies seem limited -- with the resulting cuts being similarly modest.
That said, I’m not ready to recommend that anyone go all in on one of Ray’s policies -- or perhaps even to dabble in them at all. Instead, my advice on life insurance and investing for retirement remains traditional. Invest early and often. Diversify your investments. If you’re young and someone relies on you financially, make sure to carry plenty of term life insurance.
Regardless of where you stand on Ray’s MPI plan, he’s creating meaningful conversations about personal finance in a country where 1 in 3 Americans has no retirement savings. That conversation is a healthy one.
Chris Huntley is a life insurance agent, the founder of Insuranceblogbychris, and president of Lifeinsuranceshoppingreviews. The views in this story are his opinion and do not necessarily represent the views of Money.
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