Suze Orman Says Indexed Universal Life Insurance Is a 'Horrific' Investment That Will Get You In Trouble — 'I Am Begging You Not To Do Them'

Financial guru Suze Orman has consistently and emphatically cautioned against indexed universal life insurance (IUL) policies, characterizing them as "horrific" and fraught with potential financial pitfalls. 

Orman’s warnings, spanning numerous platforms over the years, underscore the complexities and risks associated with these financial products, often marketed as investment vehicles with tax benefits.

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In a 2020 podcast episode, Orman shared a distressing anecdote from a listener who had invested $12,000 over five years into an IUL policy, only to discover its value had plummeted to $4,500 due to exorbitant surrender charges. "I am begging you not to do them, not to do them, not to do them," Orman pleaded, highlighting the high costs and minimal returns that often plague these policies.

Orman’s apprehension extends beyond financial ramifications. During a Q&A session on her podcast in May 20204, she expressed bewilderment at using insurance as an investment tool, particularly in light of simpler and more reliable alternatives. 

A caller asked: "Suze, can you explain about indexed universal insurance? I have heard you say you don’t use insurance as an investment vehicle, but from what I’ve been reading, it may be a good vehicle for tax reduction." 

Orman responded unequivocally, "I don’t like them. I think you should stay away from them." 

She cautioned against the allure of tax-free loans associated with IUL policies. "I know that they’re selling it to you under the pretense that you can get a tax free loan," Orman explained. "Trust me," she warned, "it ends up possibly getting you in trouble. Stay away."

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So, what exactly are IUL policies? They are permanent life insurance that combines a death benefit with a cash value component. This cash value can grow based on the performance of a market index, like the S & P 500. While they offer the potential for cash accumulation and tax-deferred growth, they also come with high fees, complex terms, and the risk of losing money if the market underperforms.

Orman describes the cash value component of IUL policies as a loan because policyholders, when accessing the cash value, essentially borrow against their own policy. This means they are taking out a loan using the policy's cash value as collateral. The borrowed amount accrues interest, and if it's not repaid, it is deducted from the death benefit paid to beneficiaries. This can lead to a reduction in the overall value of the policy, making it crucial for policyholders to understand the implications of borrowing against their IUL.

Orman consistently advocates for transparency and simplicity in financial products, emphasizing the importance of informed decision-making. 

In essence, Orman's ongoing crusade against IUL policies is a clarion call for individuals to prioritize their financial well-being by carefully evaluating the risks and rewards of any investment vehicle before committing their hard-earned money.

It’s important to consult a financial advisor to find the best strategy for your money. They can provide personalized guidance and help you make informed decisions that align with your financial goals and circumstances.

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