UPDATE 1-NY regulator investigates indexed universal life insurance

(Adds quote from insurance expert)

Sept 21 (Reuters) - New York’s insurance regulator is investigating sales of one of the fastest growing products in the life insurance industry, know as indexed universal life, according to a letter reviewed by Reuters on Sunday.

Benjamin Lawsky, superintendent of the Department of Financial Services, sent a letter to 134 insurers earlier this month asking how they market life insurance policies tied to benchmark stock market indices such as the S&P 500. The watchdog is concerned that insurers are exaggerating potential gains to customers.

Officials are “deeply concerned” that the illustrations are “wildly inaccurate” and many people could be harmed, given how fast this sector of the market is growing, according to a person familiar with the matter.

Brian Fechtel, founder of Breadwinners’ Insurance, said he sees profound problems with the selling of cash value life insurance and that equity index universal life is “simply the latest and current hot product.”

While the policies are appealing because they are tax efficient and can protect policy holders from market losses, they can also be problematic because of hidden costs, Fechtel said.

The Wall Street Journal first reported the news of the investigation on Sunday. (Reporting by Karen Freifeld and Liana B. Baker; Editing by Marguerita Choy and Sandra Maler)