Progress on Insurance Investing and the $100,000 Challenge

(MoneyWatch)  Approximately a week and a half ago, an insurance producer by the name of Brett Anderson accepted a gauntlet that I had thrown down. That gauntlet was a quid pro quo challenge, in that I'd fork over $100K (the quid) for any product that gave me market returns with limited downside risk (the pro quo). I wrote about the challenge in Annuities and the $100,000 challenge.

You'll notice that I changed the headline to "Insurance Investing" rather than "annuities." That's because the product Brett is proposing is called an Indexed Universal Life (IUL) policy, rather than an annuity. An IUL offers flexible premiums to pay for two things -- life insurance and a cash value asset. That asset is based on an index such as the S&P 500 index.

Mr. Anderson quickly pointed out he was using this IUL rather than an annuity to meet the challenge. What he didn't point out until days later was that the challenge he accepted was not going to yield a guaranteed eight percent minimum return. What he was proposing was a product that he claims has market returns and limited downside risk.

Well, I did actually write about this in my first column, "Why So Critical on Annuities?" What the heck, I'll still game for shelling out the $100K if it meets this challenge, even though I don't get a guaranteed eight percent return.

I admit I'm a little surprised that Mr. Anderson would offer a product with life insurance costs, when the challenge didn't identify any need for insurance, and those costs would seemingly be a drag on returns. But let it never be said that I'm trying to tell Mr. Anderson how to meet my challenge.

I've clocked a fair amount of work on this, and here's an update on where I am right now. I'm hoping to write the final outcome of my $100K on Monday, October 12, 2009.

• I've got hundreds of pages of documents and a book Mr. Anderson wrote entitled "Last Chance Retirement." The cover notes "Just say 'NO' to an IRA, 403(b), 457, SEP or Roth."
• I've had several calls with Mr. Anderson and, unlike many insurance producers, he has been very respectful and hasn't questioned my ancestry.
• Mr. Anderson has, however, sent me multiple products and I'm still trying to figure out which one he wants me to buy.
• I have had two telephone conversations with the actuary and director of life products of this multi-billion dollar insurance company this producer is using to meet my challenge.

Am I about to make my first investment through an insurance wrapper?
How is this endeavor turning out? Well, I'm still sorting through things, though I will give you a hint and confess that it's not what I expected. I'll name this multi-billion dollar insurance company next week, but for now I will say that this director of life products blew me away! I went in arrogantly asking the same questions I have asked many officers of insurance companies and expecting the same answers. And I was not only wrong -- I was dead wrong.

So stay tuned and next week I'll reveal the surprises I've had over the past few days. You'll see I have quite a bit of new found respect for this to-be-named insurance company. Still, the burning question remains . . . will I be forking over $100K?

See whether the poll and discussion on the Bogleheads Forum.

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