James Gilbert/Getty Images
Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.
NASCAR star Kyle Busch and his wife, Samantha, recently said they lost more than $8 million after buying a life insurance policy that they claim was pitched as a “tax-free retirement plan.”
“I never thought something like this could happen to us,” Busch said in a press release (1). “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.”
The couple alleges an insurer and agent sold them a policy that turned out to be anything but safe.
“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,” Busch said.
Busch and his wife say they paid more than $10.4 million in premiums for an Indexed Universal Life (IUL) insurance policy, which is a type of permanent life insurance with a cash value feature.
According to a report from Autoweek, Busch anticipated that after making five payments he would be able to take out $800,000 a year from age 52 until he died (2).
“That was a lie. I looked at it and like, sounds too good to be true, but, you know, got to believe in those that are looking at it for you and telling you to believe it,” he said.
It was a red flag when they received a sixth premium payment notice. They were given the runaround when they asked questions. After consulting an independent firm, they learned their policy would expire within 16 months, essentially wiping out $10.4 million.
They have since filed a lawsuit claiming they suffered over $8.5 million in net out-of-pocket losses and accusing the insurer and its agent of misrepresenting the IUL policy as a safe, self-funding retirement vehicle.
Read more: Warren Buffett used 8 solid, repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
At the heart of the story is the product known as an IUL insurance policy.
This permanent life insurance contract combines death-benefit protection and a cash-value component, with growth tied to a stock-market index (e.g. the S&P 500), albeit indirectly. There is typically supposed to be some downside protection.
On the surface, this sounds attractive: lifelong coverage, tax-free death benefit and potential for tax-deferred accumulation. But beneath the marketing are hidden costs and a risk of policy collapse if assumptions don’t hold.
Key risk factors include:
-
High fees: The cost of insurance charges can increase with age and can erode cash value.
-
Caps and participation rates on index-linked growth: If the market soars, you may only receive the cap rate indicated in your policy.
-
Dependence on premium funding and policy performance: If you stop or reduce premium payments — or growth underwhelms — the policy may lapse.
-
Misleading illustrations: Sales materials may show optimistic growth projections that do not account for changing costs or realistic index returns.
In Busch’s case, he says he was misled into believing he would have a “tax-free retirement plan” and growth that would self-fund premiums.
And he’s not alone.
“This is not just an issue for celebrities or professional athletes. It is an issue for everyday Americans,” said Robert G. Rikard, founding attorney of RP Legal (1).
“Across the country, teachers, small business owners, and retirees are being sold complex life-insurance contracts as if they were simple, risk-free retirement plans. The danger lies not in the product itself, but in how it’s marketed and presented as a guaranteed path to retirement security.”
Because life insurance plans can be convoluted, and their marketing materials can be manipulated, it’s important to find an insurance agent that you truly trust. While the insurance industry is highly regulated, these regulations are state-dependent — so standards can vary widely.
Plus, given life insurance aims to provide coverage for many years in the future, it’s integral that you choose an insurer you believe will remain financially sound for years to come.
For instance, a term life insurance policy through Ethos offers simple, affordable protection that lasts for a set number of years — usually between 10 to 30. It’s designed to help replace income, cover unexpected expenses and protect your loved ones.
Here’s how it works: Your premiums stay level, and you get guaranteed coverage until the end of your term, unless you renew or convert your policy. If you pass away during the term, the policy pays a tax-free cash benefit to your beneficiaries.
Term life insurance premiums are also lower than those in an IUL. Ethos provides policies with up to $2 million in coverage, starting at just $2 per day. Their application process ensures you get flexible coverage options quickly and transparently — within as little as 5 minutes, helping you get back to what matters most.
If you’re being sold an IUL policy as a guaranteed tax-free retirement plan, let this story provide a cautionary tale. Before proceeding, consider taking the following steps:
-
Understand the product: Ask about the cost of insurance, fees, caps, participation rates and what happens if premiums stop or growth underperforms.
-
Ask for worst-case projections: What happens if the index stays flat for 10 years, or if premiums increase?
-
Compare simpler alternatives: For many, a term life policy (like what Ethos offers) combined with direct investments in an RRSP or 401(k) equivalent may offer better flexibility and clearer costs.
-
Seek independent advice: The salesperson may have a strong incentive for a large commission, so consider consulting an independent financial advisor for the best course of action.
Unlike insurance salespeople, a Registered Investment Advisor (RIA) is legally required to act in the best interest of their clients. With Advisor.com, you can find the right financial professional to help you fulfill your wealth goals. It’s a free service that helps you find a RIA by matching you with a small list of the best options to choose from.
Even better, you can set up a free, no-obligation consultation with one of their pre-screened financial advisors today to see if they’re the right fit for you.
But there are other options if you’d prefer to combine investment advice with portfolio management.
With Vanguard, you can connect with a personal advisor who can help assess how you’re doing so far and make sure you’ve got the right portfolio to meet your goals on time.
Vanguard’s hybrid advisory system combines advice from professional advisers and automated portfolio management to make sure your investments are working to achieve your financial goals.
All you have to do is fill out a brief questionnaire about your financial goals, and Vanguard’s advisors will help you set a tailored plan, and stick to it.
The legal claims in the Busch matter include misrepresentation, negligence and unfair trade practices.
“Pacific Life and its agents concealed the products’ inherent complexity, hidden costs, and extreme volatility,” the complaint says (1). “The sales strategy was designed to create the illusion of stability and investment-grade performance while masking structural risks that guaranteed eventual policy failure.”
Regulators have warned about the risks associated with IUL policies because they may not perform as expected if conditions change or premiums aren’t maintained.
The Busch case is a reminder that the combination of high premiums and an aggressive sales pitch can lead to a significant risk.
So if you’re evaluating an IUL plan, question whether you’re buying life insurance or an investment disguised as insurance, and make sure you understand what you’re signing up for.
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.