2 Common Index Crediting Methods Used by Indexed Universal Life (IUL) Insurers

2 Common Index Crediting Methods Used by Indexed Universal Life (IUL) Insurers

Insurers determine the rate of return to enter into their interest crediting formulas in their Indexed Universal Life (IUL) policies using a variety of crediting strategies. The most common are the point-to-point (or “ratchet”) method—calculated either annually or monthly—and the monthly averaging method. Point-to-point crediting methods. Both of the point-to-point crediting strategies begin the crediting cycle with a marker at the beginning of the contract, and track the movement of the underlying stock index(es) to…

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4 Items to Consider When Assessing Indexed Universal Life (IUL) Insurance

4 Items to Consider When Assessing Indexed Universal Life (IUL) Insurance

Selecting the best cash value life insurance policy is a difficult task involving a number of complicated concepts. However, because the amount insurers credit to cash values on IUL policies is a critical element of the overall cost of the protection, one primary area of focus should be how the company determines the amount it credits to cash values. The amount that insurers credit to cash values each year depends on four factors: The expenses…

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How Equity Indexes are Used With Indexed Universal Life (IUL) Insurance

How Equity Indexes are Used With Indexed Universal Life (IUL) Insurance

The equity indexes that insurers use for their interest crediting formulas are price indexes, not total return indexes. Price indexes do not include dividends, interest, or other investment income investors would earn if they purchased a mutual fund tracking one of the major indexes, such as the S&P 500. To get index returns comparable to a mutual fund investing in the S&P 500 in an IUL policy, the equity index would have to be the…

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Alternatives to Owning Indexed Universal Life (IUL) Insurance

Alternatives to Owning Indexed Universal Life (IUL) Insurance

Insurers and policyowners can configure an IUL policy’s premium payments and death benefits to resemble virtually any type of life insurance policy, from annually-renewable term to single premium whole life. Consequently, any other type of policy that meets a policyowner’s needs is a suitable, and perhaps preferable alternative if the policyowner does not need the IUL’s flexibility or equity indexing feature. However, a number of other types of policies or strategies offer some of the…

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Tax Considerations of Owning Indexed Universal Life (IUL) Insurance

Tax Considerations of Owning Indexed Universal Life (IUL) Insurance

The income tax rules for IUL policies are virtually identical to the tax rules for UL policies which are essentially the same as the tax rules for other types of life insurance policies. Beneficiaries receive death benefits that usually are free of any federal, state, and local income tax. IUL policies also are subject to the same estate, gift, and generation-skipping transfer taxation rules as all other types of life insurance policies. Also, the income…

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Disadvantages of Indexed Universal Life (IUL) Insurance

Disadvantages of Indexed Universal Life (IUL) Insurance

Policyowners of index universal life bear virtually all the disadvantages they would bear if they owned regular universal life policies. Many of these disadvantages stem from or are natural consequences of the advantages IUL offers. Disadvantages include (among others associated with all life insurance in general): The flexibility associated with premium payments can be a disadvantage because policyowners can too easily allow their policies to lapse. There is no forced savings feature, because IUL policies…

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7 Advantages of Indexed Universal Life (IUL) Insurance

7 Advantages of Indexed Universal Life (IUL) Insurance

Policyowners of Indexed Universal Life (IUL) enjoy virtually all the advantages they would enjoy if they owned regular Universal Life (UL) and Variable Universal Life (VUL) policies including (among others associated with all life insurance in general): the flexibility to vary premiums and change face amounts; the transparency and unbundling of the policy elements allowing them to easily track and compare insurance company projections of these elements and actual performance over time; the availability of…

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3 Reasons to Consider an Indexed Universal Life (IUL) Insurance Policy

3 Reasons to Consider an Indexed Universal Life (IUL) Insurance Policy

Potential policyowners may consider IUL for any life insurance need. Initially, the insurer and policyowner may configure an IUL policy’s death benefit and target premium level to resemble virtually any type of life insurance policy from annually renewable term insurance to single premium whole life. However, both because of policy costs and because equity-type investments generally are more suitable for middle- to longer-term investment horizons, IUL generally is best suited for longer-term coverage needs. For…

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An Introduction to Indexed Universal Life (IUL) Insurance

An Introduction to Indexed Universal Life (IUL) Insurance

Indexed Universal Life (IUL) is a pseudo-hybrid of regular (or fixed) universal life (UL) and variable universal life (VUL). Like regular UL, it is a flexible premium, current assumption, adjustable death benefit type of cash value permanent life insurance with a guaranteed minimum interest crediting rate. Like VUL, the amount the insurer credits to the cash accumulation account is tied to an equity index such as the S&P 500 or the Nasdaq 100. Most IUL…

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6 Unique Advantages of Indexed Universal Life (IUL) Insurance

6 Unique Advantages of Indexed Universal Life (IUL) Insurance

The unique advantage of  Indexed Universal Life (IUL) is that it allows policyowners to earn potentially higher returns tied to the performance of equity indexes, similar to Variable Universal Life Insurance (VUL) policies, while retaining the safety afforded by the insurer’s guaranteed minimum interest crediting rate, similar to regular Universal Life (UL) policies. This advantage has several dimensions: The safety of no negative returns. Clients burned in recent years by declining values in the equity,…

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