ALL ABOUT INDEXED UNIVERSAL LIFE INSURANCE IUL2022AboutIUL IndexedUniversal.Life 1-800-743-9221 [email protected]
Overview Indexed Universal Life Insurance What is Indexed Universal Life Insurance? Guaranteed Returns Key Takeaways How an IUL Policy Works Understanding Premium Buckets About Index Credit On Annual Reset Indexing Options IUL Policies: Index Caps, Participation, and Floor Rates Existing Index Cap, Participation, and Floor Rates IUL Crediting Methods Crediting Examples Selecting an Index Method Potential Cash Value of a Policy Partial Withdrawals Variable Interest Rate Loans (VIRL) Standard Loans Glossary of Terms 08 TABLE OF CONTENTS 03 04 04 04 04 08 05 09 06 11 06 11 06 11 07 12 07 12 13 IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 2
Overview This guide provides details about indexed universal life insurance (IUL). In it, you will find an overview of IUL, IUL keywords, and how growth and crediting works within Indexed Universal Life Insurance. Additionally, you will learn how to access a policy’s cash value using partial withdrawals, variable interest rate loans, and standard loans. No matter your reasons for obtaining life insurance, identifying the best IUL products can help you meet your family security and retirement income needs. As such, you ought to consult with an independent life insurance rep to identify which product suits you. IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 3
Indexed Universal Life Insurance What is Indexed Universal Life Insurance? Guaranteed Returns Indexed Universe Life Insurance pays death benefits upon a policyholder’s death. Like other universal life insurance policies, IUL products can accumulate a cash value that can be used to pay policy premiums in the future or for retirement or other future cashflow needs. However, an IUL policy differs from other life insurance products in how it credits interest. An IUL pegs the policy’s growth, or Crediting, to the performance of a tracked index such as the S&P 500. How Indexed Universal Life Insurance credits the cash value portion of the policy increases the potential for more significant cash value accumulation. In contrast to variable life insurance products, an IUL protects policyholders from the risks inherent in the stock market. Because as an IUL policyholder, you do not participate directly in the stock market, and therefore benefit from a policy that offers certain principal guarantees and performance minimums provided by the issuing insurance company. Key Takeaways An IUL cash value account earns accumulation based on interest rates calculated, or ‘Credited,’ using a tracked index or indices performance. IUL premiums are not invested directly in bonds, equity investments, or stocks. Performance guarantees are offered based on the claims-paying ability of the issuing insurance company. The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. IndexedUniversal.Life IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 4
How an IUL Policy Works Remit premiums into a Fixed Account, one or several Index Selections, or a mix of both depending on your needs Even so, Fixed Accounts earn a guaranteed declared interest rate An IUL offers you the opportunity to earn tax-deferred interest partially based on your Fixed Account or Index Selections.1 Remember that an IUL protects you from market risks. However, you can During the allocation of premiums to an Index Selection, insurers create an Index Segment (bucket), marking the beginning of an Index Period. An Index Period is the duration of time used to track index changes. Each premium has a unique bucket. Each Index Segment has a unique Index Credit assigned on the Index Crediting Date: the first day after the end of an Index Period. Insurers calculate your Index Credit based on your Index Selections subject to the Index Cap, Index Floor, and Index Participation Rates. Typically, your Index Credit is never zero. Note: An Index Segment auto-renews the Index Period unless you submit a transfer request. IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 5
Understanding Premium Buckets About Index Crediting Rates Annual Reset Almost all IUL offerings utilize Index Segments, i.e., buckets. For instance, a policy based on monthly premiums has 12 buckets—12 index starting points, 12 crediting interest rates, and 12 annual reset points before the next Index Period. Given that, you can remit premiums at any time, with each payment being an individual bucket. The insurance company credits any earned Index Credit to your Index Segment(s) on the Index Crediting Date. Typically, crediting follows the expiration of an Index Period. Once an Index Period expires, a new one begins. But you might ask, what happens to any earnings in an expired Index Segment? An expired Index Segment retains all values in it unless you decide otherwise. Then again, a new Index Period utilizes a previous Index Period’s end date to determine new index values. An Index Period’s end or start date may fall on a weekend or holiday. Given that, insurers use index values of the next business day to calculate your new Index Credit. Most IUL products have an annual reset. An annual reset refers to the locking of a year’s interest rate. This locking occurs on the Index Crediting Date and helps determine a new crediting period. Also, locked-in credited interest provides future growth opportunities and compounded interest. IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 6 1NB: All keywords appear in italics. See page 13 for glossary of terms.
Indexing Options IUL Policies: Index Caps, Participation, and Floor Rates A key advantage of all IUL products is their flexibility. As such, you can customize an IUL plan to suit your specific needs. Although an IUL isn’t a direct investment in an index, you can select an index to calculate your policy’s interest crediting rates. Check out the sample list below of common indices: EURO STOXX 50 NASDAQ-100 Stock Price Index (NASDAQ-100) Russell 2000 Index Standard & Poor’s 400 Index (S & P MidCap 400) Standard & Poor’s 500 Composite Stock Price Index (S&P 500) Note: Most carriers let consumers allocate premiums to a Fixed Account or several indices or both. Note: Some index selections impose no caps on the interest crediting. Before an Index Period begins, it must declare its Index Cap Rate, Index Floor Rate, and Index Participation Rate for every Index Segment. Below is the formula for deriving the index change: Index Change Index Participation Rate Credited Interest Rate A policy’s Index Credit equals its Index Segment value at the start of an Index Period, minus transfers or surrenders, multiplied by its index crediting interest rate. Crediting interest rate interest rate value depends on three factors: Index Cap Rate, Index Floor Rate, and Index Participation Rate. A value used to ascertain a policy’s maximum Index Credit rate. Often, its value is less than a policy’s Minimum Index Cap Rate. This value determines a policy’s Minimum Index Credit and is always above 0%. This rate is a portion of an index’s change for calculating the Index Credit and is never below a policy’s indicated Minimum Participation Rate. Index Cap Rate Index Participation Rate Index Floor Rate = X IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 7
Typically, IUL’s use an Index Segment’s initial value to determine an account’s Index Credit. Although monthly policy deductions reduce the initial Index Segment value, calculating the Index Credit relies on the value present in an Index Segment before the commencement of an Index Period. To illustrate, assume the allocation of an Index Segment worth $2,000 and deductions of $100 each month. At the end of its Index Segment, it will have a value of $800 (less $1,200 deductions). Yet, interest rate crediting applies to its initial Index Segment value of $2,000 at the start of its Index Period. Existing Index Cap, Participation, and Floor Rates We recommend researching a provider’s current Index Cap, Floor, and Participation rates before committing to any IUL offering. IUL Crediting Methods IUL Crediting Methods determine the change in the index value of an Index Period. Several crediting methods are available for use, including Annual Point to Point, Daily Averaging, and Monthly Point to Point. These methods vary across different IUL products and carriers. The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. IndexedUniversal.Life IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 8
Crediting Examples Given the variations and differences in crediting methods, no single approach guarantees better performance over the years. Even so, the following hypothetical examples demonstrate the effect of index crediting methods on an Index Selection. Note: You should consult with an independent IUL Expert regarding the index crediting methods applicable to your policy. A. Annual Point-to-Point: this strategy tracks an index’s movement across 12 months of an index period. Next, the Index Participation Rate is multiplied multiplied by this value to obtain the crediting rate, which is never below 0% or more than the annual Index Cap Rate. This index crediting method is available on six indices. B. Annual Point to Point with Spread: this method tracks an index’s change throughout an index period, typically 12 months. The crediting interest rate is a product of the index value and the participation rate less the spread rate. Any obtained crediting rate is always above zero. HYPOTHETICAL EXAMPLE Capped Uncapped Start Index Value 1,000 1,000 End Index Value 1,200 1,200 Index Change 20% 20% Index Cap Rate 10% N/A Participation Rate N/A 50% Index Crediting Rate 10% 10% HYPOTHETICAL EXAMPLE Start Index Value 1,000 Avg. Index Value 1,200 Index Growth 20% Spread Rate 4% Participation Rate 100% Index Crediting Rate 16% IndexedUniversal.Life The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 9
C. Monthly Point to Point: this method tracks an index’s change over 12 months of the index period as a percentage (negative or positive) and is subject to a monthly Index Cap Rate. Upon the end of an index period, any growth is determined by the crediting rate, which is never below the Index Floor Rate. Only the S&P index offers this option. HYPOTHETICAL EXAMPLE Monthly Index Cap Rate: 4% Index Participation Rate: 100% MONTHLY DATE Index Value Index Growth Crediting Rate Growth January 1 100 0.00% 0.00% February 1 102 2.00% 2.00% March 1 103 0.98% 0.98% April 1 104.29 1.25% 1.25% May 1 110 5.48% 4.00% June 1 115 4.55% 4.00% July 1 115 4.55% 4.00% August 1 115 5.92% 4.00% September 1 105 -8.70% 8.70% October 1 106 0.95% 0.95% November 1 112 -5.66% -4.00% December 1 111 -0.89% -0.89% Note: The above hypothetical scenarios illustrate different Index Crediting Methods. These scenarios are not actual or historical index performances. Your performance will differ, perhaps significantly, from the hypothetical information provided above. Every Index Segment has a different Index Change because of the effect of an Index Selection’s Index Cap Rate, Index Floor Rate, and Index Participation Rate. The inability to project the future growth rate of any index is why it is impossible to know what crediting rate to expect. Even so, it is never below zero percent. Typically, IUL policy terms assume a level interest rate based on an average return over a policy’s lifetime. Given that, it pays to request multiple illustrations from different IUL companies and products so you can better understand how potential returns can affect a policy’s performance. IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 10
Selecting an Index Method Potential Cash Value of a Policy Partial Withdrawals IUL products lets you allocate premiums into a single index or a mixture of indices. Also, you can review or transfer your premium allocations between indices any time you want once an Index Segment’s period expires. When deciding how to allocate your premiums, consider distributing your allocations across several index selections. In doing so, you maximize your policy’s performance when one index performs poorly while others perform well. Always consider the effect that the index cap rate and index participation rate have on your policy when choosing an index selection. Often, these rates influence the amount of growth your index receives and determine the limits of potential index growth. An IUL policy allows you to tap into its cash value to address any emergencies you encounter. The following options are available to you: standard loans, partial withdrawals, and variable interest loans. Here’s a breakdown of each option. Most IUL companies let policyholders take partial withdrawals from their policy’s cash value. But doing so reduces your death benefit. What’s more, you have access to tax-free partial withdrawals, but your policy’s tax status determines your eligibility. At times, your insurer may impose a minimum withdrawal cap, processing fees, and surrender charges upon making a withdrawal request. Note that these requirements differ from product to product. Consult your policy’s terms for clarification. The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. IndexedUniversal.Life IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 11
Standard Loans Standard loans charge a declared interest rate depending on your carrier. Similarly, this rate varies across different carriers. That’s why you should consult with an independent agent for clarification regarding the rates of the specific product you select. The difference between the interest rate charged and the credited interest rate is the net cost of the standard loan. A standard loan’s maximum net cost is obtained by subtracting a policy’s maximum interest rate and a Fixed Account’s guaranteed interest rate. Variable Interest Rate Loans (VIRL) These are loans borrowed against a policy’s cash value. Typically, carriers impose an interest rate using a monthly average. Interest charged on these loans is higher than a policy’s indicated variable interest rate. Besides, this rate changes every policy year but is based on a monthly average. Interestingly, any loaned cash value accumulates interest depending on allocation: Fixed Account or Index Selection. Although loaned funds accumulate interest, credit is more or less than the loans’ indicated interest rate. Guidelines Typically, interest is charged in arrears with unpaid interest added to your loan balance and earns interest at the indicated rate. You cannot take a standard loan alongside a variable interest rate loan. Note: variable interest rate loans set their charges and credit interest rates at future intervals. As a result, it is impossible to ascertain a VIRLs total net cost at the onset of a policy. IUL2022AboutIUL [email protected] • www.indexeduniversal.life • 1-800-743-9221 12
Glossary of Terms Account Value: The sum of the Index Account Value and the Fixed Account Value. Fixed Account: An account with a fixed interest rate Fixed Account Value: A value composed of a Fixed Account’s total premiums or transfers less policy charges, expenses, extra coverage costs, benefits, or partial surrenders. Insurers credit the Fixed Account Value using a declared but unguaranteed interest rate. Index Account Value: The sum of all Index Segments in an Index Selection. This value comprises all premiums or transfers allocated to an Index Selection less policy fees, expenses, extra coverage costs, benefits, or partial surrenders, plus Index Credits (if any). Index Cap Rate: This represents the maximum interest rate of the calculated Index Credit. Each Index Segment in an Index period has its Index Cap Rate declared in advance. However, it is never below a policy’s indicated Minimum Index Cap Rate. Index Crediting Date: This refers to the first business day following the end of an Index Period when an Index Segment is credited. Index Crediting Method: This term refers to the process of calculating an index change. The five Index Crediting Methods include Annual Point to Point with Spread, Annual Point to Point, High Participation Annual Point to Point, Monthly Point to Point, and Multi-Index Point to Point. Every method’s index change is subject to the Index Cap Rate, Index Floor Rate, and Index Participation Rate. Beware that these methods vary across IUL products and carriers as well. Index Floor Rate: Refers to the minimum interest rate used to calculate the Index Credit. Each Index Segment has its Index Credit declared before the beginning of an Index Period, and it never falls below zero percent. Index Participation Rate: This is a portion of the index change for calculating the Index Credit. Each index Segment has its Index Participation Rate declared before an Index Period begins and is never less than the published Minimum Index Participation Rate. Index Period: Refers to the duration of time for which an Index Credit is calculated. Typically, an Index Period begins immediately after creating an Index Segment and uses 12 sequential months. A new Index period begins once a previous Index Period expires. Index Segments retain their values unless a policyholder decides otherwise. Index Segment: This is an account that earns Index Credit through an Index Selection. An Index Segment is created on the date when an Index Selection gets premium or transfer allocations. An Index Segment expires when it cannot cover the costs of its policy. Even so, policies can have multiple Index Segments (buckets). Index Selection: This is a composite of an Index Crediting Method and an index, for instance, Standard & Poor’s 500 Composite Stock Price Index. Disclosure: Content is not personalized financial advice and should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Tax and legal information provided is general in nature and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Indexed universal life insurance may not be suitable for you depending upon your investment objectives, risk tolerance, financial situation, and liquidity needs. Accessing policy cash value through loans and surrenders may lead to a permanent reduction of the policy’s cash value and death benefit, which may lead to a potential lapse of the policy. There may be tax penalties for distributions prior to age 59 ½. Insurance product guarantees are subject to the claims-paying ability of the issuing companies success. Working with a highly-rated adviser also does not ensure that you will experience a higher level of performance. Please contact the adviser for more information regarding the criteria for any awards or rankings noted. Ratings can be based on client evaluations, professional activity and promotional fees paid by the professional. IUL2022AboutIUL 13 [email protected] • www.indexeduniversal.life
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