If you’ve got an IUL illustration sitting on your desk right now and something about it feels off, trust that instinct. The five red flags that show up in a bad illustration are: rates run above the benchmark ceiling, death benefit that’s bloated relative to premium, no minimum-death-benefit comparison offered, cap assumptions that ignore rate integrity, and an agent who can’t explain why any of it was built that way. Every one of these is a structure problem, not a product problem.

Why These Red Flags Matter

Most people signing an IUL illustration have never seen a second one to compare it against. They don’t know what “normal” looks like, so a bad design slides right past them.

That’s exactly how the industry stays broken. An agent hands you a piece of paper with big numbers on it, you feel good about the future it paints, and you sign. Nobody in that room is checking the assumptions against reality.

This isn’t a fringe problem. It’s the majority of policies written, and it’s why IUL has a reputation problem that the product itself doesn’t deserve. The fix isn’t avoiding IUL. The fix is knowing what a properly structured one looks like on paper before you ever get to a signature line, which is the whole reason we built /iul-done-right/ as a resource in the first place.

What Rate Assumptions Should You See?

An illustration should show projected growth somewhere in the 6.3% to 7.5% range, the ceiling the NAIC’s actuarial guideline on indexed illustrations sets for what an insurer may show. Anything materially above that is a fantasy number designed to make the policy look better than it will ever perform.

Here’s why this matters. Illustrated rates aren’t a guess. Regulators cap them for a reason: insurers got burned in the past by agents projecting whatever number closed the sale. If your illustration is running hot, above that ceiling, or the agent is talking about historical caps from years ago like they’re guaranteed going forward, you’re looking at a sales tool, not a financial plan.

Real-world crediting typically lands in the 6% to 8% range depending on the index strategy and the carrier’s cap and participation rate structure. That’s a realistic expectation. A 9% or 10%+ illustrated growth rate on the accumulation side is not growth. It’s a red flag wearing a growth costume.

How Do You Spot a Death-Benefit-Heavy Design?

You check whether the death benefit is doing more work than the premium justifies, because a death-benefit-heavy design is built to maximize commission, not cash value.

This is the single biggest tell in the whole illustration. Every dollar of premium that goes toward buying death benefit you don’t need is a dollar that isn’t compounding as cash value. Agents get paid more upfront when they sell more death benefit relative to premium. That creates a direct financial incentive to structure your policy wrong.

A properly structured policy buys the minimum death benefit the IRS allows under the 7702 corridor test while stuffing every remaining dollar into cash value. If your illustration shows a death benefit that towers over your annual premium, ask why. There’s rarely a good answer.

Does the Illustration Show a Minimum Death Benefit Comparison?

No. Most illustrations never show you what the policy would look like structured for the minimum death benefit Internal Revenue Code section 7702 allows instead of target premium, and that omission alone should stop you from signing.

A good agent runs both versions side by side. One shows the policy as designed, target premium, higher commission, bloated death benefit. The other shows what happens if the same premium dollars were redirected toward minimum death benefit and maximum cash value. The gap between those two versions, compounded over 20 or 30 years, is not small.

If your agent has never shown you that comparison, or reacts defensively when you ask for one, that’s the tell. It means either they don’t know how to run it, or they know exactly what it would reveal. Neither is acceptable when it’s your money compounding for three decades.

Why Do Inflated Cap Assumptions Matter More Than the Rate Itself?

Inflated cap assumptions matter because caps aren’t fixed. Insurance companies can raise or lower them at will, and an illustration that assumes today’s cap holds forever is quietly betting your retirement on a number the carrier controls.

This is where rate integrity becomes everything. A carrier with strong rate integrity manages caps and loan rates in the client’s best interest over time, the same way a mutual company manages whole life dividends. A carrier without it will offer an attractive cap to win new business, then quietly lower it once you’re locked in. That’s a bait and switch, and it happens.

The agent isn’t off the hook here either. A good advisor knows which carriers have a track record of honoring rate integrity and builds the illustration on realistic, sustainable assumptions, not the flashiest cap on the market today.

What the Numbers Show

Here’s the pharmacist analogy, because it applies directly to illustrations. The agent is the doctor writing the prescription. If they prescribe the wrong medication, structure the policy with a bloated death benefit and inflated caps, the carrier who issues the policy isn’t the one who made that call.

The Kyle Busch situation that made headlines is a clean example. The problem wasn’t the product. It was a design that didn’t match what the client actually needed. The agent wrote the prescription.

Checklist for reading your own illustration:

• Illustrated growth rate sits at or below the 6.3%-7.5% benchmark, not above it
• Death benefit is close to the IRS minimum corridor, not inflated for commission
• A minimum-death-benefit version was run and shown next to the target premium version
• Cap and loan rate assumptions are described as historical, not guaranteed
• The agent can explain, in plain language, why every number on the page is what it is

If any of these are missing, that’s not a reason to write off IUL as a category. It’s a reason to write off that particular design, and possibly that particular agent.

If you’re holding an illustration and can’t tell which of these red flags apply, that’s exactly what a strategy call is for. We’ll walk through your numbers line by line and show you what properly structured actually looks like.