There are many versions of permanent life insurance to choose from. The traditional permanent policy has always been what is referred to as Whole Life, built on a foundation of strong guarantees with the investments primarily in Fixed Income. But the long period of declining (and now rising) interest rates have spawned a number of alternative products that give the buyer another option to the interest rate risk of Whole Life and Universal Life. With interest rates rising the performance of Fixed Income has been somewhat compromised, and Indexed Universal Life might be the answer!
Let’s explore why
The performance of an Index Universal Life (IUL) contract is an effort to take advantage of the growth of the equity markets, without being subject to the corrections. More specific Indexed UL policies have:
a 0% floor. If the index corrects in any period, dropping 20% an Indexed IUL owner suffers no loss
on the growth side an IUL caps the annual growth of the index to a specific percentage, some as high as 12%. So if the index grew 20% in a year, the IUL owner increase would be capped at 12% (or whatever their contract cap indicated)
So IUL has downside protection with an upside cap.
If an IUL is a contract with some appeal versus Whole Life or Variable Life here are a couple of investigation points to consider:
what index is being tracked ? (e.g. S & P)
for your index, using history as a guide, have the agent report on the last 10, 20 and 30 years of performance, inputting the floor and cap of the product
have the agent provide ledgers of 4, 5 and 6% hypothetical rates of return to give you a better feel for performance
IUL like other permanent life contracts must fit the buyer, and the underlying investment should be a part of the fit.
If you have a client in an Index Universal Life Policy , or would just like a review , contact me at 203-698-9341 or drop me an email for some support firstname.lastname@example.org
Author: Steve Shepard
Founder/Principal, Shepard Insurance Group - At Shepard Insurance Group we begin every relationship with a face to face meeting with the client. In a comprehensive discussion of coverage needs, personal concerns, objectives and finally appetite for risk, we can arrive at the proper insurance solution. Understanding the client is the first step to accurate execution.