• Cash value built up can be used to lower or potentially cover premiums without subtracting from your death benefit. Some policies may allow the policyholder to select multiple indexes. Policyholders can decide the percentage allocated to the fixed and indexed accounts. The selected index value is recorded at the beginning of the month and compared with the value at the end of the month. If the index increases during the month, the interest is added to the cash value. The index gains are credited back to the policy, either on a monthly or an annual basis. IULs usually offer a guaranteed minimum fixed interest rate and a choice of benchmark equity indexes to track. People who need permanent life insurance protection but wish to take advantage of possible cash accumulation via an equity index might use IULs as key person insurance for business owners, premium-financing plans, or estate-planning vehicles. Let's say your selected index for your IUL policy gained 6% from the beginning of June to the end of June. The 6% is multiplied by the cash value. The resulting interest is added to the cash value. Some policies calculate the index gains as the sum of the changes for the period, while other policies take an average of the daily gains for a month. No interest is credited to the cash account if the index goes down instead of up. The gains from the index are credited to the policy based on a percentage rate, referred to as the “participation rate.”5 The rate is set by the insurance company and can be anywhere from 25% to more than 100%. For example, if the gain is 6%, the participation rate is 50%, and the current cash value total is Investopedia / Dennis Madamba Example of Indexed Universal Life Insurance
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