An MPI (Maximum Premium Indexing) account combines life insurance and a retirement plan. It's pitched as having the ability to compound your wealth at a higher-than-average rate while protecting your principal, eventually providing long-term tax-free retirement income, and then passing on the wealth tax-free to your heirs.
Is it too good to be true? That's what I've endeavored to find out.
In this post, I will explain the basics of the MPI plan. Then I'll discuss issues with Indexed Universal Life (IUL) insurance and how MPI attempts to solve them. Finally, I will also run through how MPI accounts work and the pros and cons of the MPI account.
I was very intrigued by the idea of this product. That is why I decided to apply for a plan and analyze it as best I could to see if it could deliver on its promises.
Also, I want to clarify that I was not paid for this review. I just found MPI (listening to a podcast), loved the sound of it, applied for a plan, had many conversations and emails with Curtis Ray and Mutual of Omaha to verify the information, and then did my own math on the plan to determine if it could play out as promised.
Curtis was aware I was going to write something, but he had no part in it nor commented on it. I let him know at the start that I was a finance blogger and wanted to both apply for the plan and report on my findings.
Spoiler alert: By the end of my research, I decided to go ahead and open up a plan. I felt the MPI Plan could deliver on its promises so long as market conditions remained relatively stable. Additionally, the risk-reward ratio of the MPI plan was very favorable.
All that (validation) said, the MPI plan is not without risk. I agree with critics that MPI and IUL insurance plans are complicated, so you should do your homework. Ensure you know what you are getting yourself into and follow through on your long-term plan.
Side note: Complexity is not always a negative. I disagree with oversimplifying things just for mass adoption. The old saying, “If it were easy, everyone would do it,” applies to executing good financial decisions. Often the easy route doesn't produce the best returns (or it lets other people have a more significant cut of your own money). This means it is essential to do your own research. If you don't have the time or inclination to get serious about your life savings, pay someone to do it for you. It's that important.
How did I find MPI?
I often appear on podcasts as a guest to talk about money, business, and investing. Before I go on a show, I'll listen to a couple of episodes to get a feel for it. Well, one of those episodes I listened to just so happened to feature Curtis Ray as a guest.
Curtis Ray talked about the many problems with conventional retirement planning. I won't get into what those are in this post, but I can say that it was like he had been reading my mind. I had never really heard anyone else (other than myself) talk about these problems. I was intrigued to hear more.
He explained that he had created the MPI plan as a solution to these problems. He has even written a book that explains the issues and then lays out why MPI is the solution. It's called The Lost Science of Compound Interest.
Although the book is a kind of comprehensive sales brochure for MPI, the information in there is still very good. At the very least, it gives you much to ponder about your retirement planning.
So who is Curtis Ray?
The MPI plan was designed by Curtis Ray, founder of SunCor Financial. Before developing the MPI plan and starting SunCor, he owned a granite countertop business. (Talk about a career change!) You can learn about it in his book (or on that podcast episode I mentioned above).
(Side note: I believe people can and should reinvent themselves. Those that can do this successfully multiple times are pretty clever. Go, Curtis Ray!)
After his first career hit a wall, he experienced some financial setbacks. He became very interested in “capital preservation” and, of course, still growing that capital and potentially passing it on.
So Curtis Ray came up with a highly-optimized yet safer-than-average retirement plan. Initially, he developed this plan to invest his retirement own savings. Later, it became his subsequent career.
Curtis' goal was to take all the best parts of the different investment asset classes (stocks, real estate, insurance) and combine them to take peak advantage of the actual science behind compound interest.
The product he designed is a retirement plan that utilizes a type of indexed universal life insurance (IUL) provided by Mutual of Omaha (among a few other insurance companies). It is administered so that it's relatively safe, achieves consistent returns protected from market downturns, delivers ample tax-free retirement income, and finally passes on a nice, tax-free inheritance to your heirs. He then opened SunCor Financial to sell his product to you and me. You apply for the life insurance policy you need through SunCor, and they provide ongoing support to ensure the necessary steps are taken down the road to keep the plan functioning as designed. So SunCor is your insurance broker, but a unique one at that. While Curtis Ray is not the only person to create this asset, his recipe is unique. It's even patent-pending.
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What is an MPI Account?
MPI stands for Maximum Premium Indexing, or, in layman's terms, a financial strategy that “could generate lots of money for you.” More specifically, though, it's a combination approach that provides life insurance and acts as a retirement planning vehicle simultaneously.
MPI takes the features of an indexed universal life insurance contract and attempts to bolster them and create new benefits. Curtis sometimes calls it IUL 2.0. See him explain it here.
The very idea of combining life insurance and investing is something many financial “experts” say you shouldn't do. But conventional wisdom isn't always sound. Often it's just easy to repeat what most people say because you won't look bad if things don't go well!
As mentioned above, MPI accounts can (theoretically) provide you with a relatively safe way to achieve consistent returns protected from market downturns, deliver ample tax-free retirement income, and then finally pass on a nice tax-free inheritance to your next of kin.
There is some controversy around IULs in that they can potentially be a dangerous way to invest your money, which is very true. More on this later.
The selling points of MPI from an investment perspective
MPI accounts work by using a mix of stock market growth, leverage, and capital preservation. Let's break it down a bit more.
An MPI secure compound interest account grows in line with the S&P500 index. However, the MPI account (via the terms of the IUL) has a floor of 0%, which means that even if the S&P500 crashes by 30% in one year, you won't lose anything!
You do give something up for that protection against market downturns, though: its limited upside is capped at 10% (more on this below). And for clarity, because the plan comes with annual fees, you still “lose money,” though the same is true for traditionally managed accounts. When your account loses money, your money manager still takes their fees.
As mentioned above, the growth of your cash account grows in line with the S&P. It's limited on the downside to 0% but is capped on the upside at 10%. If the S&P500 returns 8%, your account value will go up by 8%. If the S&P goes up 20%, you only get 10%.
Historically, the S&P500 has returned around 10% per year for its investors (with reinvested dividends). But when factoring in the 0% floor and 10% cap, MPI has averaged about 7% over the last 25 years, according to Curtis.
Not bad when considering capital preservation security. And certainly better than CDs, bonds, and other more secure investments. Also, the historic 10% of the S&P comes with huge peaks and valleys.
Curtis claims his math shows that with protection from the many years of having to climb out of those valleys, the 7% return actually produces more money. And depending on when you get in and out of the market in your lifetime, it could be a good clip more.
Then you add on the leverage of the RELOC as a bonus.
Within the MPI, there's a feature called the RELOC or “Retirement Equity Line Of Credit.” This RELOC, or participating loan, lets you access the insurance company's money with relatively low-interest rates (around 4%).
Using this RELOC, MPI holders have the potential to supercharge their returns in the stock market by an extra 2-3% every year by borrowing from the loan side of the plan and reinvesting that money into the savings side of the plan.
The flip side, of course, is that in 0% years, any RELOC money is hurting your account balance. However, on average, over the last 20 years, this approach has added extra points to your growth.
A huge positive point with the RELOC that you need to understand is that the money you borrow from your plan requires no qualification or application and has no ongoing payments. This is one of the lynchpins of why the MPI plan can work so well.
Instead of making any ongoing payments, the insurance company keeps an ongoing tally of your compound interest and settles up your loan when you die out of your death benefits proceeds. This is a fantastic feature of the MPI plan. (It also creates a third side of the MPI plan we'll look at later, which Curtis calls “Pure Compounding.”)
Here is a video summary for you:
The selling points of MPI from a retirement perspective
Tax-free growth of funds inside the savings account
Like your 401ks and IRS, the development of your money in the savings account is tax-free per the IRS tax code. So while you put your money into the plan after it's taxed, it grows tax-free (like a 401k).
Tax-free retirement income
The MPI plan offers tax-free retirement income. It can do this because the money that it puts in your bank account upon retirement comes from the loan side of the plan. AKA the RELOC.
Much like when you get money out of your house or investment property via a refi, these proceeds are not income because they are technically borrowed money.
Again, because the RELOC does not require any monthly payment while you are alive, it can serve as an ongoing cash flow (as long as your cash balance remains positive).
Now, for this to work out as planned, the market needs to do its job, and you need to keep feeding and managing the plan as you initially set out to. So an MPI plan is a commitment on your part.
If you bail early, it will likely be a bad result.
Life insurance products have significant protection from lawsuits, much like 401k and IRA accounts. Curtis indicates that they have even better protection.
Tax-Free death benefits pass on to your heirs.
If the MPI plan plays out as designed through all your living years, and doesn't lapse, the initial life insurance amount, plus any remaining cash balance, pays out to your beneficiaries tax-free.
However, there is a cap on the amount that can transfer tax-free. According to Nerdwallet, the cap on that is currently 11.7 million.
Other selling points of the MPI plan
- Living Benefits: You can take an advance on the life insurance to pay for chronic or terminal illness care. (That's a nice perk!) This means that if you're going to die soon anyway, they give you some money to pay for those related expenses.
- Low Expenses: In the long run, because the plan expenses decrease over time, the cumulative costs relative to account value are very low compared to traditional money management. (This does not include the cost of the insurance, however.)
- No Early Withdrawal Penalties: While there are no penalties for borrowing money out of the plan, you can't just cancel the plan and take the cash value without penalty until year 15. And because you paid for insurance along the way, that will have eaten up a chunk of your cash. More on this later.
- Permanent Life Insurance: As long as the policy remains in good standing, you will have a permanent life insurance amount to your next of kin. The cost you pay for the insurance goes up every year. The idea is that more account growth covers that increased cost while also delivering on all the other promises.
All these benefits are outlined in this video:
Is the MPI account technically a “retirement” plan?
Actually, no. MPI is not a “retirement plan” officially. It's a life insurance policy that is also designed to help you save for retirement and grow money in the process.
While it's technically not a retirement plan, it has many of the same benefits because the tax-related benefit of life insurance offers similar advantages to “retirement plans.”
How does it differ from a traditional 401k or Roth 401k?
You might be wondering, “How does an MPI plan differ from a traditional Roth IRA or 401k?” or “Is an MPI better than a Roth IRA?” Here are some similarities and differences.
- Your money inside the plan grows tax-free.
- Your retirement distributions can be tax-free, like a Roth IRA or Roth 401K. However, the reason why they are tax-free is not the same as a retirement plan.
- Also, like a Roth IRA or Roth 401K, your money goes in after-tax.
- Like regular retirement accounts, the money inside your plan is far more protected from lawsuits than your traditional accounts.
- MPI account is guaranteed not to lose principal due to the 0% floor. If you have market investments in your 401k and the market tumbles, the value of your 401k will similarly go down.
- You don't make your own investment choices in MPI. Your money is tracked with the S&P index. In self-directed IRAs and 401Ks, you can invest in whatever you want. Or attach a manager to do it for you.
- IRAs and 401ks require you to hit age 60 before being able to withdraw anything without penalty. You don't suffer any penalties if you withdraw early with an MPI account. If you are planning on early retirement, it can work better for you.
- Traditional IRA and Traditional 401K withdrawals are taxed, while MPI retirement income is not.
- Retirement accounts don't allow for margin, so you can't get any investing leverage in a retirement account.
- If your traditional retirement accounts are professionally managed, you will pay far more fees in the long run than an MPI account.
- There are contribution limits with IRAs and 401ks. Additionally, there are traditional and Roth IRA income limits that can affect how much you can contribute as well.
How does the MPI Plan actually function?
First and foremost, the MPI plan is a specially designed and specifically administered indexed universal life insurance policy from Mutual of Omaha (but I think they use a few other carriers as well).
IUL is a flavor of permanent life insurance that has both a life insurance component and a savings account, whose growth is tied to an index (with the MPI, this index is the S&P500).
Side note: most people, including me, think of this kind of setup as “whole” life insurance, but IUL is technically different from whole life, even though it offers a combo life insurance and savings account.
What kind of IUL is the MPI Plan built on?
It's called a “Max Funded Option B” IUL. This is important because this vehicle not only comes with some nice benefits out of the box, it allows for the “extra” features of MPI to exist.
It's kinda complicated, but the net result is that the max-funded IULs allow you to put the maximum amount of money into the plan while having the least amount of insurance.
This keeps the cost of the insurance as low as possible, so more of your money can compound and then also be available for tax-free withdrawals in retirement.
Essentially, the IUL is more designed to provide living benefits than death benefits. Here is a video from another insurance guy that explains it pretty well.
Option B means that your death benefit can increase over time. So while your “life insurance amount” is always the same, the net cash value of your account grows and gets tacked on to your life insurance amount, which thereby increases your “death benefit” when you die.
Now option A means your benefits stay the same even though your net cash value is still increasing. What this means is that the life insurance amount goes down along with its costs.
Starting the plan out as option B when you are working and switching it to option A when you are retiring is a potentially good strategy. Curtis eventually mentioned this to me as I started really doing the math and testing his claims about the sustainability of the “perpetual tax-free retirement income that adjusts for inflation.”
Watch this video for some more detail on options A vs. B.
More about the downside “protection”
Your money (or principal) is kept “safe” with the MPI plan due to the 0% floor offered by the IUL. As I explained, this means that even if the stock market drops, the most you'll lose is 0% (aka nothing). While that is true, the flip side is that your growth is capped at 10%. So limited downside and limited upside.
However, beyond that, the other huge caveat is that life insurance itself costs money, and the cost of it goes up every year. And usually, this cost comes out of your cash value.
So in years when you are limited to that 0%, you actually do lose money. Yet, you get life insurance, so you can look at it a couple of ways. But this is a critical factor of the plan's long-term success, as you will see.
The design of the plan intends that your compound returns are so good that they easily cover the increasing cost of insurance.
That's the idea, at least. If that doesn't happen in practice, though, all your money can evaporate. That is the big danger with IULs. More on that below.
Beyond the cost of the insurance, there are fees that come with the plan too. So that would contribute to you actually “losing money” in a year where you were at 0% return. Of course, you pay fees when you have financial institutions manage your money too, so there's that.
However, MPI fees actually decrease over time, so the net fees of the plan over many years end up being much lower than regular money management fees. Bonus for MPI!
What is the “RELOC”
RELOC is a term Curis uses that stands for Retirement Equity Line of Credit. Basically, whatever the amount is in the savings side of your plan (aka Cash Value), you can borrow against it very easily, and pay a fairly low rate. Currently, it's 4% and is capped at 6%.
The MPI plan uses this RELOC for two specific purposes outlined below. This loan requires no application or approval screening because your cash value collateralizes it.
Again, this loan does not require any ongoing payments to make on the principal or compound interest. That is a critical point because if you had to make monthly payments, the whole system wouldn't work.
Instead, the insurance company keeps a running tally of your interest and settles up your account when you die out of your death benefit. That's a plus.
RELOC is used for reinvesting in the savings account
This is the leverage that Curtis discusses as part of his plan. The MPI plan proposes that you borrow against your existing cash value and then send the money right back into the chasing side of your plan. This creates leverage because you are now investing the insurance company's money.
The MPI plan basically requires you to do this for its tenability. While you don't have to “max fund” your plan every year, you really need to in order for it to produce enough return to cover the cost of insurance as you get older.
So, let's say you are paying 4% interest on the loan, but earning on average 6-7% return on the money in the savings side of the plan. Thereby creating an interest spread of 2-3% on average. (I say on average because in 0% years you are losing money with your leverage.)
This 2-3% may not sound like much, but over time it can add up to a ton of extra compound return. As I indicated above, it is important for the plan to remain stable. The more cash value your plan has, the better chance it has of delivering on its promises.
RELOC is used for Retirement Income
Now eventually, once you get to the retirement stage of the plan, you start to borrow even more money via the RELOC to fund your retirement years and retirement savings.
fEven though you have already been borrowing for reinvesting, the hope is that the compounded returns have produced enough overall cash value, so you can borrow even more to cover your retirement.
Since it's borrowed money that you are putting into your bank account every month, it's tax-free!
Unfortunately, this is where my own tinkering with the math behind the MPI plan exposed the biggest concerns. (More on that in my upcoming post).
How much money do you need to invest?
You decide how much you want to invest, and it's ultimately based on how much you want in retirement income. You can use The MPI Account Calculator to get an idea of how a plan can work for your budget.
I should point out that it's also limited to how much life insurance you can qualify for (as well as how much you can afford to put in).
Basically, because MPI is designed to maximize compounding, the more time you have to compound, the less money you'll need to invest. That's sort of true with all types of investing though.
That said, if you are older (like me), you can still jump in, but they recommend you drop in a lump sum to start. Here is a screengrab of the calculator for the plan I applied for.
Now, it's incredibly important to emphasize that you want to design your plan around an amount of money you can truly commit to putting in on an ongoing basis. There is a reason for this.
Ultimately, it's because the plan can implode (you lose all the money you put in, all of your promised retirement income, and all of your death benefit) if you don't “feed” the plan as designed. I know that sounds complicated, and it is.
Of course, it doesn't have to be if you do what you commit to doing (in terms of ongoing contribution). However, if you stray, figuring out how, why and when it could implode would be tough for the average person (if you don't like math).
Part of the reason for this is that while the plan doesn't have to be “max funded” every year, it remains less likely to fail if it is. But max funding it out of pocket is not really how it's meant to work.
If you only get a plan that you can afford to max fund out of pocket, you don't get any leverage. And without the leverage, you don't get the “extra growth” on your investable funds. Thereby reducing overall performance on your money.
Curtis recommends you fund at least 10% of the capacity every year and then fill the 90% gap with the RELOC loan (below).
What can go wrong with the MPI Plan?
I think I've already said it, but the long and short of it is what can go wrong is that you can lose all your money. Technically, you can lose all your money in any investment, but it would happen for different reasons with an IUL.
Ultimately, I think it's more likely you could lose all your money with an IUL, than if your money were in a regular retirement account or real estate. However, you can still lose a lot with stocks and real estate if all goes to hell.
The cost of insurance outpaces plan growth
One way this scenario happens is that the increased insurance cost gets so high that it's not able to be paid by the cash value nor out of your packet, and then the plan lapses. Once the plan lapses, everything literally evaporates. All the money you put in and all death benefit disappears. It's like you never even had an MPI plan.
This can happen in a few ways for different reasons, but it's probably more likely to happen in the later years as the insurance gets really expensive. How expensive exactly?
Well, I'm currently looking at a plan that would put 6 million of life insurance on my wife. This amount of insurance allows me a sizable plan capacity of 251K per year.
Mutual of Omaha (MOO) provided me with a few spreadsheets mapping out the fees, insurance costs, and potential cash value growth, to review. Here are how the costs go up as my wife ages. (This is for a “Female, Age 41, Preferred Plus Non-Tobacco” rating by the way.)
- 50 years old – $3,546/year
- 60 years old – $9,085/year
- 70 years old – $22,771/year
- 80 years old – $76,983/year
- 90 years old – $326,631/year
- 100 years old – $835,431/year
- 110 years old – $1,499,072/year
So as you can see, keeping up with the insurance cost through age 70 is probably doable, but 80, 90, and 100 is a lot. And if you happen to live that long, you might lose your retirement nest egg when you need it most. That could be the case with other retirement plans.
Now, here is what exacerbates the problem. Once you retire, you are not putting any of your own cash into the plan anymore, and you are cannibalizing the RELOC for retirement. So, there is less to grow and eventually less money in the plan to cover the expensive insurance costs.
The market has many years in a row of losses
Many years of market losses will cause the same problem as above but could cause it to happen earlier. The benefit of having to step in and cover the insurance out of pocket earlier on is that it's probably still relatively cheap and you can do it.
But the longer the market has years that produce your “0% floor” returns, the more likely it will implode. Actually, by MOOs own calculation, it would implode after seven years of 0% returns.
Part of the reason it could happen that quickly is that MOO reserves the right to increase the insurance cost under certain market conditions. Under extreme conditions, the insurance cost increases and implodes even quicker.
However, it would be very unlikely for the market to have multiple down years in a row. Even the great depression was roughly three declining years in a row.
How can you figure out when or why it may implode?
You can figure this out a couple of ways. You can rely on the word of Curtis and SunCor, or you can do your own math using estimated numbers MOO will provide for you, from which you extract additional calculations.
Now don't get me wrong, I believe that Curtis is totally legit and that he fully believes in this product. So he's not going to give you misleading information, and he has been very responsive and clear about his thoughts with me so far. However, he also doesn't want to make it sound not good in any way, so to get the whole picture, I think you should do the math.
Doing your math on this product is somewhat complicated, so I can't cover that in this post. However, I will be creating a post that shows how I have vetted the MPI plan and will walk you through my math and the results.
Once I get that done, I will link to it here.
Some closing thoughts about the MPI Account
With an MPI account, you can take advantage of stock market returns and leverage with the added benefit of security. However, like with other investment products, MPI accounts have their positives and negatives.
MPI Account Pros and Cons
You need to look at the pros and cons and weigh them against your goals. Here are some of the pros and cons of MPI accounts:
- You can take advantage of stock market returns AND leverage with the added benefit of security.
- Has most of the benefits of a Roth account but less of negatives.
- If the stock market crashes, you won't lose much money due to the floor of 0%.
- Using the MPI investment strategy, you have the potential to receive retirement income that is 3-4x higher than a traditional or Roth IRA account.
- This is a pro and a con: You need to commit to a plan and stick to it. Or you could lose a lot, if not all, of what you put in. But, if you commit, you'll save more money overall and potentially come out very rosy in the end.
- It's complicated, and if you don't take the time to understand how it works, you could lose a lot of your money.
- Because it requires a long-term commitment, you'll likely lose a lot of money if you suddenly decide you have to pull out.
- The longer you live, the more the insurance costs go up, and the more the plan is in jeopardy. That said, longevity is a challenge for most retirement plans.
- To have an MPI plan, you have to qualify for life insurance. And beyond just qualifying, if you don't qualify for the “best health rating,” your plan won't perform optimally. Why? Because the insurance is then more expensive.
More about Curtis and Suncore's commitment during my application process.
I want to point out that, so far, Curtis and SunCor have been very accommodating to all of my questions.
I also asked if I could record our conversation after I reviewed the first round of numbers that MOO gave me. Curtis said yes and will let me share that (when I get to doing that post).
Curtis has also answered many follow-up questions via email as I pick away at the additional calculations I received from MOO.
That is all to say that he tries hard to back up his claims. But I am still throwing questions at him, so we'll see if he can get me comfortable enough to execute the plan I have applied for.
We are still in the application process for the insurance, and that is a lot of work in and of itself! (My wife is literally on the phone with them right now, haha!)
An MPI account is a revamped indexed universal life insurance that has the power to build your wealth and financial freedom tremendously. MPI accounts work based on three key concepts:
- Growth – via the S&P500 index (around 6-8% per year)
- Leverage – via the RELOC / participating loan (about 2-3% extra per year)
- Security – via the limited downside that such life insurance policies can provide (a 0% floor)
On the downside, if you cannot fund the premiums for your MPI account, this plan could die a quick death. That is the considerable controversy in the mixing of insurance and investments. However, if you are careful in structuring your plans, you should be able to avert such issues.
So, there you have it! Everything you need to know about the MPI account. Though controversial, at the end of the day, whether an investment is suitable for you depends on your financial situation. And if you do decide to take advantage of the MPI investing plan, who knows? Maybe one day, you'll sit back and think, “Damn, I wish I had done that sooner!”