When high-income families are sold complex financial products, the results can be devastating.
One of the clearest examples is the case involving NASCAR driver Kyle Busch and his wife, Samantha, who filed a lawsuit alleging that they were misled into purchasing a series of Indexed Universal Life (IUL) insurance policies that ultimately put more than $8.5 million of their wealth at risk.
This is not just a cautionary tale about one couple. It is a case study in why IULs are almost never the optimal solution for long-term wealth planning. It highlights the difference between a product that sounds sophisticated and a financial solution that actually works.
IULs are marketed aggressively to high-income professionals, business owners, athletes and entertainers. They are described as a way to build wealth tax-free, while also protecting your family if something happens to you. The pitch sounds compelling. Unfortunately, it is built on assumptions that do not hold up in real life.
The truth is simple.
Unless you have a genuine and unavoidable need for liquidity at death because most of your wealth is locked in illiquid assets, you do not need an IUL.
And even in that very narrow scenario, there are cleaner, cheaper and more flexible ways to solve the problem than buying an IUL.
Let’s break down why.
The Busch Case in Plain English
Kyle and Samantha Busch purchased several IUL policies from Pacific Life. The way it was sold to them is the way IULs are sold to many: as a tax-efficient retirement strategy with market upside and limited downside. They were shown projections illustrating how the policy value could grow and how they could borrow against it later.
However, those projections depended on optimistic assumptions about future returns, costs and interest rate crediting. Once the actual performance and the internal policy costs diverged from what had been illustrated, the policies were at risk of failure. According to the lawsuit, the couple was told that without significantly increased funding, their policies could lapse, potentially wiping out millions of dollars in premiums paid.
This is not an isolated situation.
It is a structural feature of how IULs work.
Why IULs Fail So Often
1. The Upside Is Soft and the Downside Is Real
IUL sales presentations often imply that you get the return of the stock market without the risk. That is simply not true.
The policy does not track the real index. It tracks a derivative formula with:
- Participation limits (often 40 percent to 75 percent of the index gain)
- Caps (for example, gains limited to 10 percent even if the index returns 18 percent)
- No dividends (historically one-third of total equity returns)
This means your real long-term return is significantly lower than the market return that is implied in the illustration.
2. Costs Rise Every Year
The internal cost of insurance in an IUL increases every year as you age.
This is baked into the design.
Even if the product performs well in its early years, the rising cost burden can erode or collapse the policy value later in life. By the time this becomes a visible problem, it is often too late to fix without injecting significant new premium.
3. Policy Loans Add Significant Risk
Most IUL retirement strategies are built on the idea of borrowing against the policy later to generate income. This works only if:
- The policy grows at the illustrated rate
- Interest rates remain low
- The policy value remains comfortably above the loan balance
If any of these shift, the loan can rapidly destabilize the policy and cause a lapse.
A lapse with a loan can create a large unexpected taxable gain, often at the worst possible time in life.
4. The Projection Is Not the Plan
The core issue is that IULs are usually sold based on illustrations, not actual planning.
Illustrations show smooth, predictable growth.
Real markets and real life do not look like that.
When Does Anyone Actually Need Permanent Liquidity?
There is one legitimate scenario where permanent insurance can be appropriate:
You have significant wealth tied up in assets that are not easy to sell quickly and you need guaranteed liquidity to protect your family or estate at death.
This can occur when:
- A large portion of your wealth is in real estate
- You own a business that is not easily transferable
- You hold concentrated private investments
- Your estate could face a liquidity event that would force a distressed sale
In those cases, a death benefit can serve a purpose.
However, even in that situation:
An IUL is still not the best tool.
Better alternatives include:
- Term life insurance while you grow liquid assets
- Guaranteed Universal Life (GUL) with no moving parts
- A credit facility secured by real estate or a brokerage portfolio, which can often be obtained at lower cost and much higher flexibility
The moment you remove the need for permanent death benefit liquidity, the rationale for IUL collapses completely.
If you do not have an estate liquidity problem, then the only relevant question is:
Where is my capital better allocated?
And the answer is straightforward:
A simple brokerage account invested in a globally diversified portfolio is more transparent, more flexible, more liquid and historically more profitable.
Why Brokerage Investing Works Better
1. Real Market Returns
You get the full return of the market, including dividends.
2. Transparent Costs
You can see what you are paying. There are no hidden internal insurance charges increasing every year.
3. Unlimited Liquidity
You can take money out when you want, for the reason you want, without risking the entire structure collapsing. You can even borrow against it at less than 4% (November 2025)
4. Control
You are not locked into ongoing premium requirements. Your financial plan can adapt as life changes.
The Lesson From the $8.5M Loss
The issue is not that Kyle and Samantha Busch did something reckless.
The issue is that they were sold a product that sounded sophisticated, but was fundamentally mismatched to their needs.
This happens every day to high-income families who are told that an IUL is:
- Tax-free retirement income
- Market upside with no downside
- A smart alternative to investing
None of those statements are accurate in practice.
The real message is clear:
If you do not need permanent liquidity at death, you do not need permanent insurance.
And if you do need permanent liquidity, there are better ways to obtain it than an IUL.
Final Thought
The role of financial planning is to make life simpler.
Indexed Universal Life makes life more complicated and more fragile.
The cost of being wrong is high.
The benefit of being right is modest.
That is a poor tradeoff.
A clear plan built on liquid investments, intelligent risk management and straightforward insurance when needed is almost always the better choice.
Let’s talk about your financial situation
Your advisor
Guillaume
*This content is for educational purposes only and does not constitute personalized financial, tax or legal advice. All investment and insurance decisions should be evaluated in the context of your individual financial circumstances and goals.
