LIFT Strategy Risks
What Can Go Wrong—And How We Prevent It
We believe in radical transparency. If you're considering LIFT or any leveraged IUL strategy, you deserve to understand exactly what can go wrong. If you read this and decide LIFT isn't for you—that's a success.
The 6 main LIFT risks are: (1) Policy Lapse - high severity if loans exceed cash value, triggering taxable income; (2) Crediting Underperformance - if crediting rates fall below loan rates for extended periods; (3) Interest Rate Inversion - when loan rates exceed crediting rates; (4) Complexity Overwhelm - strategy requires quarterly engagement; (5) Premium Disruption - early premium stoppage impacts outcomes; (6) Agent/Advisor Failure - ongoing management is essential. All risks are mitigated through active monitoring, conservative LTV targets (50-70%), and de-leveraging protocols.
At a Glance
| Risks Disclosed | 6 Categories |
| Our Lapse Record | 0 Lapses |
| Monitoring Frequency | Quarterly |
| LTV Target | 50-70% |
Overview
Risk Categories Overview
Every material risk, its severity, likelihood, and how we mitigate it
| Risk | Severity | Likelihood | Mitigation |
|---|---|---|---|
| Policy Lapse | High | Low (with management) | Active LTV monitoring |
| Crediting Underperformance | Medium | Moderate | Conservative projections, 0% floor |
| Interest Rate Inversion | Medium | Moderate | Spread monitoring, de-leverage protocols |
| Complexity Overwhelm | Low | Moderate | Quarterly reviews, clear reporting |
| Premium Disruption | Medium | Varies | Built-in flexibility, emergency protocols |
| Agent/Advisor Failure | High | Low | Institutional backup, clear processes |
Risk #1
Policy Lapse
The most severe risk—and how we prevent it
What It Is
Policy lapse occurs when outstanding loans exceed the policy's cash value. When a policy lapses with loans, the entire loan balance becomes taxable income—even though you never received that money as income.
Worst-Case Scenario
- • $500,000 cash value with $480,000 in loans
- • Market underperformance reduces crediting
- • Loan interest compounds faster than cash value grows
- • Cash value drops to $470,000, loans reach $485,000
- • Policy lapses
- • You receive 1099 for $485,000 of "income"
- • Tax bill: $175,000+ depending on bracket
Why It Happens
Lapse requires a cascade of failures:
- Over-aggressive initial loan-to-value ratios (>80%)
- Extended underperformance (3+ years below expectations)
- Ignored monitoring alerts
- No adjustment to leverage levels
- Ignored carrier warnings
How We Prevent It
Conservative Design
- • Target LTV: 50-70%, never exceeding 75% intentionally
- • 15-25% buffer built into every design
Active Monitoring
- • Quarterly LTV calculations
- • Automated alerts at 75% LTV
- • Mandatory review at 80% LTV
Adjustment Protocols
- • At 75% LTV: Reduce new leverage
- • At 80% LTV: Stop all new leverage
- • At 85% LTV: Emergency de-leveraging
Our Track Record
Zero LIFT policy lapses in our practice.
Active management works.
Risk #2
Crediting Rate Underperformance
When returns fall below expectations
What It Is
LIFT's returns depend on your policy's crediting rate exceeding the loan interest rate. If crediting rates drop below expectations for extended periods, returns suffer.
The Math
| Scenario | Cash Value Earns | Loan Costs | Spread | Result |
|---|---|---|---|---|
| Ideal | 8% | 5% | +3% | Strong growth |
| Normal | 6% | 5% | +1% | Positive growth |
| Weak | 4% | 5% | -1% | Slow erosion |
| Poor | 2% | 5% | -3% | Significant drag |
Historical Context
- Past 10-year average: 6-8%
- Worst single years: 0% (2008, 2022)
- Extended weak periods: 2000-2002 ~3%
- 0% floor protection: Even when S&P fell 38% in 2008, IUL credited 0%—not negative.
How We Mitigate
- Conservative Projections: Illustrate 6%, not maximum rates
- Floor Protection: 0% floor means no negative years ever
- Spread Monitoring: Track crediting vs. loan rates monthly
What We Can't Control: We cannot guarantee crediting rates. The insurance company determines annual crediting. We can only manage response to rates.
Risk #3
Interest Rate Inversion
When loan rates exceed crediting rates
What It Is
Interest rate inversion occurs when policy loan rates rise above crediting rates for extended periods, creating negative arbitrage.
Why It Could Happen
- • Rising interest rate environment
- • Carrier loan rate increases
- • Low index performance periods
Current Environment
Most carriers offer:
- Fixed loan rates: 5-6% (locked at policy issue)
- Variable loan rates: Currently 4-6%
Fixed loan rates protect against rate increases but may be slightly higher initially.
How We Mitigate
- Loan Type Selection: Fixed loans for rate stability
- Carrier Selection: Prioritize competitive loan provisions
- Adjustment Triggers: Zero spread = heightened monitoring; Negative spread 2+ years = active de-leveraging
Risk #4
Complexity Overwhelm
When the strategy becomes too much to manage
Symptoms of Complexity Problems
- • Ignoring quarterly reports
- • Not understanding basic metrics (LTV, crediting, loan balance)
- • Failing to respond to adjustment recommendations
- • Making decisions based on incomplete understanding
Who's Most at Risk
- • People who want "set and forget"
- • Those uncomfortable with financial complexity
- • Clients who won't return calls/emails
- • Anyone who finds quarterly reviews burdensome
Our Approach
Clear Reporting
- • Plain-English quarterly summaries
- • Key metrics highlighted
- • Action items clearly stated
Proactive Communication
- • We reach out, not just wait
- • Red/Yellow/Green status system
- • Escalation when needed
Education Emphasis
- • Initial strategy education
- • Ongoing education as needed
- • Client portal with resources
The Honest Truth: If complexity feels overwhelming, LIFT isn't for you. We'd rather recommend traditional IUL than have a client who can't engage with the strategy.
Risk #5
Premium Disruption
When you can't maintain premium payments
Early Years (1-5)
- • Reduces cash value accumulation
- • May trigger surrender charges
- • Delays leverage activation
- • Could require strategy redesign
Later Years (5+)
- • Less severe but still impacts growth
- • Cash value can cover some premiums
- • Strategy adjustments possible
How We Design for This
Built-in Flexibility
- • Cash value can cover premiums temporarily
- • Premium holidays possible after early years
- • Reduction options available
Emergency Protocols
- • 6-month premium reserve recommendation
- • Early warning communication
- • Adjustment planning before crisis
Premium commitment is real. LIFT isn't appropriate if your income is unstable or you might need the premium money for other purposes within 5 years.
Risk #6
Agent/Advisor Failure
When your advisor can't or won't manage properly
How This Manifests
- • Advisor leaves industry without transition
- • Advisor fails to conduct reviews
- • Advisor gives bad advice
- • Advisor doesn't respond to problems
Our Safeguards
- Institutional Structure: IWB is a practice, not solo advisor
- Process Documentation: Your strategy is fully documented
- Carrier Relationships: You receive carrier notices directly
What You Can Do
- • Keep your own records
- • Read carrier statements
- • Respond to carrier notices
- • Ask questions if something seems wrong
Comparisons
Risk Comparison: LIFT vs. Alternatives
How LIFT risk compares to other investment approaches
LIFT vs. Traditional IUL
| Risk Factor | LIFT | Traditional IUL |
|---|---|---|
| Lapse risk | Moderate (managed) | Low |
| Complexity | Moderate | Low |
| Return potential | 12%+ | 6-8% |
| Management need | High | Low |
| Worst-case outcome | Tax liability on lapse | Underperformance |
LIFT vs. Market Investing
| Risk Factor | LIFT | Market (S&P 500) |
|---|---|---|
| Downside in bad year | 0% floor | -38% possible |
| Leverage danger | Policy loans (no margin call) | Margin (forced selling) |
| Tax drag | None | Annual taxes on gains |
| Complexity | Moderate | Low |
| Worst-case outcome | Tax liability on lapse | Significant principal loss |
LIFT vs. Kai-Zen (External Leverage)
| Risk Factor | LIFT | Kai-Zen |
|---|---|---|
| Bank relationship | None | Required |
| External underwriting | None | Required |
| Interest rate risk | Fixed loan option | Bank rates |
| Flexibility | High | Lower |
| Minimum estate | None | $5M+ typical |
Our Philosophy
Our Risk Philosophy
What we believe about risk management
What We Believe
- All investments have risk. Anyone who says otherwise is lying.
- Risk should be understood, not hidden. Transparency builds trust.
- Risk should be appropriate to goals. Wrong risk = wrong strategy.
- Risk should be actively managed. Passive hope isn't a strategy.
What We Don't Believe
- "Set and forget" works for leverage strategies
- Maximum returns justify maximum risk
- Complexity is always worth it
- Everyone should use LIFT
The Right Question
The right question isn't "Is LIFT risky?" (Yes, it has risks.)
"Are these risks appropriate for my situation, and are they being properly managed?"
After reading this, you should have a clear sense of whether LIFT's risks are acceptable
Is LIFT Right for You?
LIFT Risks Are Acceptable If:
- ✓ You have 10+ year time horizon
- ✓ You can commit to ongoing premiums
- ✓ You'll engage with quarterly reviews
- ✓ You understand leverage can work against you
- ✓ You value accelerated tax-free growth enough to accept complexity
LIFT Risks Are NOT Acceptable If:
- ✗ You want simplicity
- ✗ You can't stomach any possibility of underperformance
- ✗ You won't engage with regular reviews
- ✗ You might need the premium money for other things
- ✗ The complexity feels overwhelming
Your Situation Is Unique
We've tried to be comprehensive here, but your situation is unique. If you have specific risk questions we haven't addressed, let's talk.