I am 33 years old, married, living in De
For reference only. Not investment advice.
Question
I am 33 years old, married, living in Denver, Colorado (US).
An acquaintance working as an "independent financial strategist" came over to pitch me and my spouse an Indexed Universal Life (IUL) insurance policy.
He claimed:
- "It's superior to an IA or 401(k) because all withdrawals and policy loans in retirement are 100% tax-free."
- "You capture the upside of the S&P 500 up to an 8% cap, but if the market drops -30%, your floor is guaranteed 0% so you never lose a dime."
- "Deposit $800/month for 10 years, and it mirrors an illustrated 7.2% annual growth that will fund our retirement."
He showed us colorful graphs on his tablet, but did not leave behind the contract terms, fee schedule, or guaranteed ledger.
I haven't signed anything.
How do I audit these oral promises? What exact contractual slots (issuing insurer, surrender value table, cost-of-insurance deductions, guaranteed vs non-guaranteed ledger) must I demand in writing from the issuing insurance company before considering this?
Answer
I'll read the policy-contract reference and the supporting cards first.
Got the two cards. The IUL pitch maps cleanly to policy-contract: salesperson is not necessarily the issuer, no contract on the table, oral promises to audit against written slots. I'll also note this is US jurisdiction (Colorado, IS rules).
Let me give you what I can right now — the audit checklist and the three oral claims dissected — with a clear flag that nothing is verified yet because there's no contract in hand.
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33, married, Denver CO · IUL pitch audit
Short read: He's selling you an Indexed Universal Life policy. The three claims aren't facts until they're printed in the policy you sign. ight now you have zero contract, zero fee schedule, zero guaranteed/nonguaranteed ledger in hand — which is exactly the moment to slow down and ask for the documents below in writing, from the issuing insurance company (not from him on his tablet).
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Three oral claims, one by one
| His claim | What's actually in an IUL contract | Where to verify |
|---|---|---|
| "100% tax-free retirement withdrawals and loans" | Loan proceeds are generally not taxed as long as the policy stays in force and you don't let it lapse. Withdrawals up to cost basis are also typically tax-free. But: if the policy lapses with an outstanding loan balance, that amount can be taxed as ordinary income. It's not a blanket exemption. | IS Pub. 525 · IS Pub. 590-B · your policy's loan provision and "mecanics of lapse" section |
| "S&P 500 upside to 8% cap, 0% floor, never lose a dime" | The floor part is roughly right for many IULs (you won't lose principal from index downturns). The cap is real but it eats your upside. The part he didn't say: caps, participation rates, and spreads can change every year at the insurer's discretion. Plus the floor protects the *indexed account*, not your cash value after fees and cost-of-insurance (COI) charges. | Policy's "Indexed Account Crediting" rider + annual illustration showing current vs guaranteed crediting terms |
| "$800/mo × 10 yr mirrors 7.2% illustrated growth" | "Illustrated" means non-guaranteed. The 7.2% comes from the insurer's current crediting rate assumption, not from a contract guarantee. The guaranteed side of the illustration is usually 1–3% — that's what you'd actually get if the insurer's assumptions don't hold. And COI rises with age; if actual experience is worse than illustrated, the policy can lapse even if you keep paying. | Two-column illustration: left = guaranteed, right = current/illustrated. Ask for both columns, every year, year 1 through age 95/100. |
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The contractual slots you demand in writing
Get these from the issuing insurance company (not the salesperson). Ask him for the company's name, the policy form number, and the state of issue. Colorado has its own insurance division that can confirm the carrier is licensed.
| Slot | What it tells you | Where in the contract |
|---|---|---|
| Issuing insurer (legal name) | Who's actually on the hook if claims aren't paid | Cover page + Colorado DOI lookup at doi.colorado.gov |
| Policy form number & state of issue | Lets you pull the exact filed form from the state regulator | Cover page |
| Product type & riders | Confirms it's IUL, not whole life or term | Policy specs page + any rider endorsements |
| Premium schedule | Is $800/mo enough to keep the policy in force to maturity, or will you be asked for more? | Premium page |
| Cost of Insurance (COI) table | The biggest leak. Monthly mortality & expense charge, current and guaranteed maximum | "Charges and Deductions" section, usually a table |
| Surrender schedule | What you actually get back if you cancel in years 1–14. Surrender periods on IULs commonly run 10–15 years | "Surrender Values" or "Cash Value" table |
| Indexed account crediting terms | Cap rate, participation rate, spread, floor — current and guaranteed | Index rider |
| Guaranteed vs nonguaranteed ledger (two-column illustration) | Year-by-year cash value, surrender value, death benefit under both scenarios. Insurers are required to show this | Illustration page (mandatory under NAIC Model eg #245) |
| Loan mechanics & lapse rules | Loan interest rate (current and guaranteed), how loans affect cash value, what triggers lapse with a loan outstanding | "Policy Loans" + "Lapse and Grace Period" sections |
| Free-look / right-to-return period | Colorado requires ≥10 days from delivery; some carriers give 20+. This is your exit with no penalty if the paperwork doesn't match the pitch | First page or "ight to Examine" |
| Binding arbitration / contestability clauses | Some IULs require binding arbitration and have a 2-year contestability period | "General Provisions" |
| Insurer's financial strength rating | Whether the company can pay a claim 30 years from now | AM Best, S&P, Moody's — not in the contract itself |
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What you do this week
- Don't sign. Get his card with his name, NPN (National Producer Number), and the legal name of the insurer and policy form he quoted.
- Ask for three documents in writing from the carrier, not from him:
- The actual policy specimen (form number)
- The two-column guaranteed/nonguaranteed illustration, year-by-year to age 95 or 100
- The surrender charge schedule and the full COI table
- Verify the carrier on Colorado DOI's website (doi.colorado.gov) — make sure they're licensed to sell life insurance in CO and check the complaint record.
- Cross-check the IS tax claim against IS Pub. 590-B (distributions from life insurance contracts) and Pub. 525. The "100% tax-free" line is conditional on policy structure and not lapsing.
- Once you have the two-column illustration, plug the guaranteed column into the same spreadsheet you'd use for any retirement projection. If the guaranteed column doesn't fund your retirement, the "illustrated" column is the marketing picture.
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Honest limits
- I haven't seen your contract, so every line above is what to demand, not what's there.
- The 7.2%, the 8% cap, the 0% floor, the $800 figure — none are verifiable until they show up in the policy's guaranteed column.
- I haven't opened the Colorado DOI or the IS publications in this turn; the regulatory anchors are the right next places to read, but the exact page citations are flagged unverified until you pull them.
- This is a contract review, not a buy/don't-buy verdict. The decision is yours after the documents are in your hands.