MPI (Maximum Premium Indexing) | What To Know

An MPI™ (Maximum Premium Indexing) Secure Compound Interest Account is an Indexed Universal Life policy with sexy advertising. It’s offered by the company SunCor Financial which is owned by TikTok and social media star Curtis Ray.

As with any financial product, for certain people, a cash value life insurance policy could make financial sense.

However, the glitz and glam associated with MPIs make it easy to get sucked in without having real knowledge of the product. Here’s what you need to know about Maximum Premium Indexing accounts, and whether they are right for you – especially when compared to traditional retirement vehicles like a Roth IRA or 401k.

The Basics Of IULs

Before we continue on, it’s important to understand some of the basics of IULs. Here’s some of the common terms and functions of an indexed universal life insurance policy. It’s easier to think of an IUL as a vehicle, and all of these moving parts are within the vehicle. 

Life Insurance Policy –  Let’s start with the basics. As an IUL is a life insurance vehicle, one of the main components of the vehicle is a life insurance policy. This life insurance policy must be paid with premiums – just like any other life insurance policy. Depending on the policy, these premiums may increase every year. The goal is that the entire IUL can self fund the premiums over time using the cash value, but that may not happen for years, if ever. Also, it is life insurance, so you need to pass a physical to get insured, and your premium rate will depend on how healthy you are. Younger, healthier people will pay less for their policy. 

Cash Value – As this sounds, this is the amount of cash available in the account. This is basically the amount of money you have if you walk away and cancel the plan.

Account Value – This is the value in your account which is “growing” through dividend credits. This is also the amount used to pay fees, premiums, and more.

Surrender Fees – If you cancel the plan early, you can expect to pay surrender fees. Depending on the plan, this could be a significant fee. A common fee structure is 10% in year one and decreasing 1% per year – so in year 10 there is no fee. With MPI, the surrender charge exists until the 14th year.

Dividend Credit – This is how much gets credited to your account each year based on the performance of the underlying index and the terms of your contract (participation rate and cap and floor – see below). It’s not actually the return of the stock market! It’s a number designated by your insurance company based on the terms of your agreement.

Inside your IUL you don’t actually invest in anything – it’s still an insurance contract. And each year the insurance company credits you a dividend to your cash value based on the rules of the agreement. 

For example, the Mass Mutual Dividend Rate for 2020 was 6.20%.

Participation Rate – That participation rate is how much of an index you get to participate in the gains and losses of. For example, MPI uses the S&P 500. For example, a 100% participation rate means if the S&P 500 is up 10%, you’re credited 10%. A participation rate of 80% means if the S&P500 is up 10%, you’re up 8%. Typical IULs have participation rates from 50% to 150%.

Cap and Floor – This is the maximum and minimum amount of the index you’ll get. If there is a cap of 10%, even if the S&P500 goes up 20%, the most you’ll get is 10%. MPI also advertises a floor of 0%. Meaning if the S&P500 is ever negative, you simply stay at 0%. Remember, the 0% floor doesn’t mean you can’t lose money, it just means you don’t get a dividend credit that year. You’ll still need to pay your premiums and fees.

Loans – IULs offer loans against the cash value in your account. MPI brands this nicely as a RELOC™ (Retirement Equity Line of Credit™). This loan has an interest rate, which can vary by plan but MPI advertises a rate of 4-6% per year for their plan. You can use this loan to access the cash value of your account tax-free.

MPI suggests you use this loan to “supercharge” your returns – which basically means you’re borrowing from your IUL and using that money to fund your insurance premiums. That increases the cash value of your life insurance, which hopefully would earn a dividend. They highlight an arbitrage of borrowing at 4% and receiving a 7% dividend – suggesting that you’re ahead 3%. That may or may not always be the case.

Policy Lapse – A policy lapses, or is voided, when the cash value is $0 and a premium payment or fee cannot be paid. You can prevent a policy lapse by paying your own money into the plan (which is what you do up front – or maybe even spread it over several years), or by self funding. Most insurance agents would tell you the goal is to self fund – get a big enough premium in so the cash value grows faster than the premiums due. 

The marketing material for MPI stresses that its features and benefits are slightly different than any current life insurance or annuity products on the market today. It even says that it’s a better option than putting your money in a Roth, Traditional IRA, or 401(k).

First, like many IUL plans, MPI accounts have a 0% floor. In other words, your investments will never have a negative return. However, it’s important to note that even with the 0% floor, you could still lose money on an MPI account once premiums, fees, and any loan interest cost have been taken into account. 

Second, MPIs have no age restrictions or early withdrawal penalties. SunCor Financial says this make them a great option for early retirees. However, to access your cash you’re doing so through a loan – so while there are no age restrictions, there is a loan involved. The reason is you can’t withdraw more cash than your basis or you will face taxes. Furthermore, cash withdrawals dimish the value and reduce “compounding” or future credits. So most would recommend a loan anyway.

Third, plan owners get access to RELOC, an open line of credit that uses your cash value as collateral to buy investments on margin to “accelerate returns.” You can begin using borrowed funds to invest after two years of paying scheduled premiums. This is the said loan, but MPI encourages you to use it to super-fund your premiums, thus potentially boosting returns.

Insurance costs inside an MPI are “front-loaded,” meaning that they are very high for the first several years of the policy. If you decide the MPI is not for you, you will very likely get less money out than you put in. In investing terms, you’re likely to face negative returns over the short-term. MPI highlights that their surrender charge doesn’t go away until year 14, so it may be a long time before you see positive returns.

As mentioned above, the MPI also introduces a form of buying on margin (or leverage) around Year 3 of your contract. This “benefit” is called the MPI Match Program and allows you to borrow against your cash value at an interest rate of 4%-6%. SunCor Financial claims that taking advantage of the MPI Match Program can increase your compounded returns by up to 15%.

However, the math isn’t as clear as it seems. It makes assumptions about the rate of return versus what you’re paying on your loan. If the S&P 500 does poorly, you still owe your loan, but you may not get a big enough dividend credit to cover the interest. That diminishes the cash value and could lead to a policy lapse.

The risk of policy lapse is high in the first few years, especially if you don’t fund a large enough premium up front. And if the policy lapses, you basically threw away all your money. 

The risk of policy lapse can also be high if your insurance premiums rise (especially as you get older). Since the insurance inside your IUL is a renewable term policy, you’re faced with term renewals and associated premium increases every year or two. When you’re young and health, this doesn’t really matter. But as you age, the premium prices can rise dramatically. If you combine this with the potential of low growth, your policy may not be able to self-fund the premiums.

Here’s a great article breaking down the math on IULs and where these dividend and return credits pose problems.

Given the cost of the MPI, many people will have to choose between retirement investing and MPI. The cost of MPIs are so high (if you want them to work out in the long run) that most people will have little money left over for traditional investing.

The SunCor Financial website justifies this cost by positioning the MPI as a form of retirement investment. It’s not. MPI is a form of life insurance. As with all whole life insurance contracts, retirees can borrow against the cash balance to fund their retirement. And, yes, cash value life insurance withdrawals are typically tax-free up to your basis. And yes, you can access your cash before retirement age with a loan… but none of these features make it a retirement account or better than a retirement account.

This financial product could work for you, or it could not. But it should be very clear that the MPI account is not a retirement account. It’s a cash value life insurance plan.

Frankly, no. An MPI is not a particularly good place to put retirement funds. Suncor Financial’s videos will have you believing that MPIs have unique tax advantages that can’t be replicated elsewhere. In reality, qualified retirement accounts like Roth IRAs and 401(k)s tend to offer superior tax benefits.

SunCor Financial’s use of a loan also makes the MPI a questionable choice for retirement investing. It receives the standard UIL premiums PLUS the interest you’re paying them for borrowing money. This could quickly cause your initial cash account to begin to dwindle, or even cause the policy to lapse.

You could have just purchased the index yourself in a retirement account and enjoyed better risk-adjusted returns.

If you’re looking to fund your retirement, the common wisdom is to invest money through an employer-sponsored retirement plan if you have a match available to you. If you’re a freelancer or small business owner, you may want to consider a Solo 401(k) or one of the other self-employed retirement plans. And Traditional or Roth IRAs are usually the best options for everyone else.

People who don’t want to invest in the stock market should look at real estate or small business investments. But a life insurance contract should not be the first place you look to invest for retirement.

Anyone seriously considering a life insurance or annuity product for investing should consult with a fiduciary financial planner (perhaps one specializing in estate planning) before buying the contract. If this product doesn’t fit your needs, it can end up being a very expensive mistake.

When Could MPI Make Sense?

There are honestly very few cases where we believe MPI is the right financial tool for the job. We try not to dismiss every financial product even if it doesn’t seem like a fit for the broad market. So, when does MPI (or IULs in general) make sense?

Well, potentially for ultra high net worth individuals who are maxed on all their traditional tax deferred means, and are looking for some downside protection (maybe due to other high risk assets in their portfolio), and don’t mind paying the premiums associated with that protection. Whew… that’s a lot. And chances are, that’s not you. 

Be Careful With Mixing Insurance And Investing

This isn’t specific to MPI or Suncor, but rather insurance and IULs in general.

If you’re reading this, please just be careful mixing insurance and investing. You typically get less insurance at a higher cost, and your investments underperform traditional accounts (due to those caps).

Furthermore, the incentives of most insurance salesmen don’t always align with your own personal financial security. While researching this article, we came across this in an insurance agent board:

In some cases, these IUL plans may not be setup for your best interest, but potentially the agent’s best interest. And the language and terms can be confusing, so it makes sense you might not know if this plan or policy is best for you.