Maximum Premium Indexing: Over-Rated or Under-Rated?

You’ve been searching for the right life insurance policy, but there are so many different options that you feel overwhelmed and ready to give up. After many hours spent reading and learning, you finally found out about Maximum Premium Indexing and thought, “Finally! This is what I want.” But soon after that, you started questioning your decision. We know the struggle.

Maximum Premium Indexing (MPI) sounds really tempting for everyone who wants to buy a life insurance policy to have both—protection and investment opportunities. But is MPI truly worth the hype? And what if there is a better strategy to improve your finances?

You will find answers in this article.


Let’s get started!

Table of Contents

    What is a Maximum Premium Indexing Account?

    MPI, or maximum premium indexing, is a financial strategy that is represented as something that can help you generate lots of money. In more detail, MPI is an account that combines, at the same time, life insurance coverage and retirement planning.

    How is that even possible, you might ask?

    Maximum premium indexing utilizes a type of indexed universal life insurance (IUL) provided by Mutual of Omaha (and a few other insurance companies). MPI promises to be relatively safe, achieve consistent returns that are protected from market downturns, deliver tax-free retirement income, and pass a tax-free inheritance to your beneficiaries.

    The founder and CEO of MPI® Unlimited is Curtis Ray. You’re probably familiar with this name if you regularly follow business podcasts and finance content online. But let’s see what his story is.

    Who is Curtis Ray?

    Curtis Ray designed the MPI plan and founded SunCor Financial. Prior to that, Curtis owned a granite countertop business, but his career hit a wall. He experienced many 

    financial troubles and became very interested in improving his financial situation. Curtis was especially curious about capital preservation, generating wealth, and passing it on.

    Since Curtis Ray was aware of all the drawbacks of traditional retirement plans, he decided to devise his own strategy. He intended to create a highly optimized account that was safer than an average retirement plan. We will see if he manages to do that.

    The idea behind MPI was to combine the best aspects of the different investment asset classes, including stocks, real estate, and life insurance, and combine them to get the maximum benefits of compound interest.

    Curtis Ray

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    After designing MPI, Curtis founded his new company—SunCor Financial, to sell his product. The process of buying it doesn’t differ much from buying regular life insurance. You apply for the life insurance policy you need through SunCor. After that, they help you design the policy and make a plan—like a regular insurance broker. But, of course, they wouldn’t say they were just a regular insurance broker firm.

    Even though Curtis Ray is not the only person to have designed this strategy, he says his way is unique. What’s also a big difference between SunCor and other companies in the same niche is marketing.

    Curtis Ray went viral on TikTok with the current 1.5 million followers, making their already amazing marketing strategy even better. In fact, people have become increasingly interested in MPI in the last couple of months because of its popularity on this social media platform.

    Since many people are seeing TikTok videos about maximum premium indexing, and they know most similar videos are either paid sponsorships or scams, they can’t help but wonder, “Is the MPI too good to be true?”

    To answer that question, we need to dig a little deeper.

    How Does the MPI Work?

    According to the company’s website, “the MPI is an innovative indexed universal life insurance policy that encompasses the Triple Advantage of Compound Interest: security guarantees of life insurance, the growth potential of the S&P500, and the compounding acceleration of leverage.”

    Whoah; not so engaging for something that should make you want to buy it. But here is a simplified version of the previous definition, represented in visual form:

    The MPI triple advantage

    This definition made many professionals suspicious. Generally, safety and money growth don’t go hand in hand. In fact, safety and growth tend to work against each other, and that’s why many professionals think that any product that claims to offer both is either 1) truly revolutionary, 2) a scam, or 3) doesn’t offer these two things equally well.

    What is the case with MPI? Keep reading this article to find out.

    The Role that Indexed Universal Life Insurance Policies Play in MPI

    As we already mentioned, MPI runs on a type of life insurance called indexed universal life insurance (IUL). Even though MPI made some adjustments and added innovations to the IUL model, most people are concerned that there are still unsolved fundamental issues.

    So, are you familiar with the problems of IUL? If not, here is a brief explanation.

    Indexed Universal Life Insurance Explained

    Indexed universal life insurance is a type of permanent life insurance, meaning the policyholder has insurance coverage for his entire life. Besides lifelong coverage, permanent life insurance policies have a unique feature that term policies don’t—a cash value component.

    Since IUL is a type of permanent insurance, IUL policies last for the entire lives of policyholders and can build cash value over time. But, unlike other types of permanent policies, an IUL policy places the cash value in sub-accounts that mirror a stock index like the S&P 500.

    How does IUL work?

    IUL insurance works the same way as all the other permanent policies: policyholders pay monthly premiums in exchange for lifelong coverage. One part of that premium payment goes toward paying out the death benefit and other fees, and the rest goes to the cash value.

    Since IUL policies are tightly connected to the stock market, they are much more complex than other types of insurance policies. The cash value is stored in one (or several) sub-accounts that mirror the performance of the stock or bond index.

    Every policyholder chooses which accounts to invest in based on what the insurer offers. Then, the insurer pays interest to policyholders based on the index’s performance—if the index goes up, the account earns interest; if it drops, the account earns less or nothing at all.

    How much an account can earn is subject to “floors” and “caps” to help minimize large swings in interest payments. The floor represents the lowest an account rate can go and is usually set at 0%. This means that if the market crashes, the account won’t experience losses. The floor can’t be changed while the policy is in force.

    On the other hand, the cap is the highest interest the account can earn. Even if the market is up more than the cap, the policyholder will get credited only for the cap amount. For instance, if the cap is 10% and the index rises by 12%, a policyholder will only earn 10% interest. While the policy is still in effect, the insurance company can change a cap as opposed to a floor.

    how indexed universal life insurance works

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    Cons of Indexed Universal Life

    Since MPI is strongly connected to IUL, we need to see what the drawbacks of IUL insurance are that make people doubtful about MPI.

    • Risk. Often, the indexes don’t rise as quickly as projected, affecting the return on the investment and most likely failing to meet expectations. This further means that this could lead to the policyholder owing extra money to keep the policy from lapsing. If you want a guaranteed payout, whole life insurance is a much safer option. But we will come to that later.
    • Time and effort. IUL policies need to be monitored because of the constant changes in the market. During periods of low returns, policyholders may need to pay more into the account to prevent the policy from lapsing.
    • Capped returns. Limitations such as caps and participation rates can hinder your ability to fully partake in the success of the market. Additionally, their value may decrease over time, resulting in further restrictions on your investment returns.
    • Fees. IUL coverage fees are not fixed, and the insurance cost can increase over time. In that case, they can reduce the value of your cash account or the payments you make. On top of that, insurance premiums are higher than the average rate for insurance.
    IUL Insurance

    What Made MPI So Popular?

    The combination of what MPI accounts promise to offer their users and great marketing strategies, especially since going viral on TikTok, made this strategy really attractive to many.

    Let’s see what people liked about the idea of MPIs.

    Investment Advantages of MPI

    The MPI strategy underlying IUL that has a cash value component that can be used for many investment purposes. Here is the triple advantage of compound interest that made MPI so popular.

    Security

    The MPI strategy was designed to secure compound interest in the account that grows in line with the S&P500 index. But, in contrast to stocks, if the S&P500 crashes by 30% in one year, people with MPI accounts won’t lose anything. This safety is guaranteed thanks to the floor of 0% in the IUL.

    Of course, you need to give something in return for this protection against market downturns. That’s why IUL has a cap of 10%, so if the index rises by 12%, you will still get 10%. 

    To be clear, you still “lose money” with the plan because there are annual fees, even though this is also true for traditionally managed accounts. If you lose money on your account, your money manager still takes their fees.

    Growth

    The growth of your cash account grows in line with the S&P. So, even though it is limited on the downside protection to 0%, it is also capped on the upside at 10%. This means when the S&P500 returns 8%, your account value increases by 8%. And when stock market returns 20%, you still only get 10%.

    According to the designer of the MPI plan, historically, the S&P500 has returned around 10% per year for its investors with reinvested dividends. However, with the 0% floor and the 10% cap, MPI has averaged about 7% over the last 25 years, according to Curtis.

    That’s pretty solid results when considering capital preservation security. And what’s important is that these results are better than those of CDs and bonds. On top of that, the historic ten percent of the S&P comes with huge peaks and valleys.

    SunCor Financial claims that the 7% return on investments can generate greater wealth when shielded from prolonged periods of market downturns. Also, the timing of your entry and exit from the market during your lifetime could potentially result in even more substantial gains.

    Leverage

    The MPI plan has a feature called the RELOC, shortened for “Retirement Equity Line of Credit.” This feature allows you to take a loan from a life insurance company with interest rates around 4%, which is lower than with other financial institutions.

    With the RELOC, MPI holders can potentially amplify their returns in the stock market by an extra 2-3% annually. You can achieve this by taking a loan from the plan’s loan side and reinvesting the money in the savings side of the plan.

    On the other hand, any RELOC money will hurt your account balance in 0% years. But on average, in the past 20 years, this approach has contributed to your growth.

    investment advantages of MPI

    What is RELOC?

    A retirement equity line of credit, or RELOC, is an essential feature of an MPI plan. RELOC allows you to make loans against the cash value kept in your account. This loan lets you borrow against your policy at a modest interest rate. Interest rates vary within MPI plan variations, but they’re usually 4% and are capped at 6% per year. 

    A huge advantage of RELOC is that you don’t need a qualification or application to access the insurance company’s money. 

    MPI advertisers suggest you use the retirement equity line of credit for two purposes: to supercharge your returns and for retirement income.

    RELOC as a Source of Retirement Income

    When you decide to retire, you will eventually start borrowing money with RELOC to cover your living expenses and needs during retirement. The main idea is that you have accumulated enough existing cash value through compounded returns so that you can borrow even more. 

    Retirement Advantages of MPI

    Tax-Free Growth 

    Like some traditional retirement vehicles, like 401(k) plans, your cash value account growth is tax-free per the IRS tax code. It means that you put your after-tax dollars into an account, and the growth of your funds inside the savings account is tax-free.

    Tax-Free Retirement Income

    One of the biggest selling points of MPI is tax-free retirement income. MPI made it possible to have this benefit because the money that MPI puts in your bank account upon retirement comes from the RELOC—the loan side of the plan. Since it has the status of a loan, it’s not considered income and, therefore, is not taxable.

    RELOC can serve as an ongoing source of cash flow as long as the cash balance remains positive. Still, it’s not without conditions. This can only work out if the market does its job and you keep feeding and managing the plan as you initially set out to. 

    Legal Protection of Assets

    MPI offers legislative protection for assets. This protection is mostly against lawsuits, liens, creditors, or judgments that can devastate both individuals and business owners alike. Protecting your future self from legal and financial threats should be the main focus of all MPI plans.

    Tax-Free Death Benefit for Your Beneficiaries

    Suppose you keep your MPI account throughout all your living years, and it doesn’t lapse. In that case, the insurance company will pay out your initial life insurance amount and the remaining cash balance to your beneficiaries, and that money will be tax-free.

    Unfortunately, there is a cap on the amount that can be transferred tax-free. If you’re interested in creating generational wealth, MPI isn’t the best solution for you. But don’t worry; we will also talk about the strategy that can help you achieve your goal.

    Increased Retirement Income

    According to Curtis, compared to the traditional 4% rule of retirement funds in traditional retirement vehicles like the 401k and IRA, MPI can produce up to 15% income with time.

    No Early Withdrawal Penalties

    Many people point out that the most significant advantage of MPI is that you don’t have to reach a certain age before withdrawing funds, and there are no withdrawal penalties. As a result, they suggest that MPI is for people who want to retire early.

    Even though it is all true, there is the other side of the coin. 

    To access your cash, you have to make a loan. So, instead of retirement age restrictions, you get a loan involved. You have to make a loan because you can’t withdraw more cash than your basis. And taking a loan is another way to face taxes, but we want to run away from high fees and borrowed money, not jump to them.

    retirement advantages of MPI

    Is MPI a Retirement Account?

    As we saw, MPIs have numerous advantages similar to some retirement accounts, but they are not classified as retirement savings accounts. Instead, MPI is an insurance policy that is initially designed to help people save for retirement and grow their money along the way.

    MPI vs. 401(k) and Roth IRA

    MPI has many retirement advantages, but is it better than traditional retirement accounts like 401(k)s and Roth IRAs?

    To answer this question, we need to see what the similarities and differences are between these two categories.

    What is similar to both MPI and 401(k) or Roth IRA is that you put your after-tax money into an account where it grows tax-free. Another similarity is that with both the MPI account, 401(k), and Roth IRAs, your money is far more protected from lawsuits than with traditional accounts.

    And there is an end to their correlation.

    traditional retirement income

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    On the other hand, there are multiple differences, one of the biggest being the potential loss. If you have market investments in your 401(k) and the market tumbles, the value of your 401(k) will similarly go down, while your MPI account won’t lose principal because of the 0% floor.

    But still, with MPI, you don’t make your own investment decisions because your own money is tracked by the S&P index. In contrast, with 401(k)s and IRAs, you have the complete freedom to invest in whatever you want.

    We already pointed out that one of the advantages of MPI is that there is no penalty for early withdrawals. Contrary to this, 401(k) and Roth IRA accounts have significant penalties for withdrawing anything before the age of 59 ½. On top of that, withdrawals from traditional IRAs and 401(k)s are taxed, while retirement income from MPI is not.

    Another big difference, and the reason why people prefer MPI over a 401(k) or Roth IRA, is the contribution limit. In traditional retirement vehicles, there is a contribution limit you must follow, while it doesn’t exist in the MPI plan.

    MPI retirement income vs IRA retirement income

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    It’s really hard to tell who is the winner of this battle because they all have their pros and cons, and the result will depend on every person’s preferences and needs.

    There is only one question left.

    Is Maximum Premium Indexing Worth the Hype?

    The MPI strategy promises a lot. But the key question is: at what cost?

    The bottom line is—you can lose all of your money if things go wrong. Of course you can lose money on (almost!) any of your investments, but here the problem is that you don’t have control over it.

    IUL works in a way that makes losing money more probable than with regular retirement plans or real estate. And because MPI is basically an upgraded version of IUL, it has the same disadvantage.

    MPI unlimited logo

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    To answer whether it is worth the hype or not, we need to individually weigh MPI account pros and cons against our goals. 

    Advantages of MPI Account

    • Benefit from stock market growth while leveraging your investments, all while enjoying added security.
    • Retains most advantages of a Roth account while minimizing drawbacks.
    • If stock market crashes, the floor of 0% ensures minimal financial loss.
    • By employing the MPI investment strategy, you can potentially attain retirement income that surpasses that of a traditional or Roth IRA account by 3-4 times.
    • This aspect can be viewed as both positive and negative: Commitment to a plan is crucial, as deviating from it may result in significant losses or the complete depletion of invested funds. However, maintaining steadfastness in your approach can lead to overall increased savings and potentially lucrative outcomes.

    Disadvantages of MPI

    In the MPI secure compound interest account there are various drawbacks but here we will highlight the most important ones.

    • Without dedicating time to comprehending its intricacies, you risk incurring significant financial losses.
    • Given its requirement for long-term commitment, a sudden decision to withdraw from the plan is likely to result in substantial monetary setbacks.
    • As your lifespan extends, the associated insurance costs rise, posing a potential threat to the stability of the plan. Nevertheless, longevity remains a challenge for most retirement plans.
    • MPI is an advanced life insurance contract, meaning health exam, known as medical underwriting, is mandatory to get approved. A person who has health issues could be declined, or his insurance premiums can be significantly higher than regular.

    Is MPI Really the Best Option?

    Let’s get this straight: MPI is a fantastic financial instrument with a great idea!

    The combination of insurance and a retirement plan can improve every person’s life. But only if it’s done safely and easily. And unfortunately, MPI isn’t completely safe, and it’s definitely one of the most complex insurance products.

    MPI is a great financial strategy with even better marketing, but it is simply not for everyone. The MPI plan is the best for individuals who want to dedicate themselves completely, who already have a lot of experience and knowledge in investing and earning compound interest, who don’t mind taking risks, and most importantly, who plan to continue to do the same for the rest of their lives.

    But…

    Usually, people who are completely into investing and generating wealth want their money to stay in the family. The biggest reason why people want to invest and grow money is to ensure their retirement years and transfer their money to children. Since MPI isn’t suitable for generational wealth, if you’re really interested in building wealth—MPI isn’t the best option.

    Luckily, we have a suggestion for you that you will love!

    Lifestyle Banking

    Even though MPI is a great strategy, it can’t beat Lifestyle Banking. Why?

    Well, Lifestyle Banking is a financial strategy similar to Infinite Banking that utilizes a whole life insurance policy, which is also a type of permanent coverage, but it’s not connected to the market. Unlike IUL policies, the cash value of whole life policies grows at a guaranteed rate, no matter what.

    Since whole life insurance doesn’t depend on the index’s performance, you have zero risk of losing your money and no limitation on growth, and overall insurance costs are cheaper than with IUL insurance. The best part? Whole life insurance also allows you to earn compound interest.

    And there is more.

    Lifestyle Banking has all of the MPI’s advantages and a few extra ones. With Lifestyle Banking, you also have a tax-free death benefit for your beneficiaries, tax-free growth, tax-free retirement income, legal protection of assets, and cheaper premiums than with MPI.

    On top of that, with Lifestyle Banking you can create your own family bank and transfer all the money to your heirs, just like with Infinite Banking.

    And the most significant difference between MPI and Lifestyle Banking is that Lifestyle Banking is designed to be used for your entire life, not just retirement. In fact, it is called Lifestyle Banking because it allows you to finance your lifestyle at any age. So, the younger you start—the more time you have to truly own your own lifestyle and experience financial freedom.

    With Lifestyle Banking you can erase your debt, generate cash flow, finance anything in your life, from major expenses to little things, secure your retirement, and make money that your family can use too.