‘Recession-Proof’ Insurance Is Trending. Safety Net or Scam?

Indexed universal life insurance (IUL) is being promoted as a “recession-proof” retirement vehicle, but consumer advocates warn that some sales pitches may be misleading consumers by omitting key costs and risks [1]. IULs are legitimate permanent life insurance products that build cash value, but they are not securities, so they don't have to follow the same federal regulations as investments [1]. Agents selling IULs don't need securities licenses and may not have a fiduciary duty to act in the best interest of the consumer [1]. “What those promoters are claiming would be illegal and sanctionable by anybody in any other segment of the financial service business,” said Barry Flagg, a certified financial planner and founder of life insurance analytics firm Veralytic [1]. New IUL policies brought in a record $4.5 billion in premiums in 2025, according to LIMRA, an insurance and financial services trade group [1]. The surge comes as 62% of Americans believe the U.S. economy will enter a recession in the next 12 months, according to a June NerdWallet survey conducted online by The Harris Poll [1]. NerdWallet is an American personal finance company founded in 2009 that earns money by promoting financial products to its users [5]. IUL policies contain front-loaded fees, including administration and asset management fees, and the cost of insurance [1]. It can take 20 or more years to build up enough cash value to total the premiums paid into the policy [1]. Regulators have capped the maximum crediting rate a policy illustration can project at 5.5%, but Flagg noted that a flat projection erases real-world market volatility [1]. “The people who are saying IUL is better than a 401(k), they better be disclosing the costs, just like you have to in a 401(k),” Flagg said [1]. The marketing of complex financial products with high fees and opaque risks echoes earlier eras of consumer finance. The 2008 financial crisis, triggered in part by the collapse of the U.S. housing bubble, was exacerbated by predatory lending for subprime mortgages and by deficiencies in regulation [4]. During the 1990s, Congress passed legislation intended to expand affordable housing through looser financing rules, and in 1999, parts of the 1933 Banking Act were repealed, enabling institutions to mix low-risk operations with higher-risk activities [4]. The resulting crisis led to a severe economic recession, with millions becoming unemployed and many businesses going bankrupt [2]. U.S. household net worth declined by nearly $13 trillion from its pre-crisis peak, and housing prices fell nearly 30% on average [2]. IUL earnings are limited by caps and participation rates that insurers can change at any time [1]. Flagg recounted buying an indexed product for his children’s college fund with a 70% participation rate, only to see the rate cut to 30% the following year [1]. Consumer advocates recommend that potential buyers demand year-by-year cost disclosures and performance requirements before purchasing a policy [1].