We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • THE BASICS ON INDEXED UNIVERSAL LIFE: Reprint for #LIAM

    September 13, 2023 by Sheryl J. Moore

    February 7, 2011

    It has been nearly thirty years since consumers were first offered the benefits of Universal Life (UL) and with UL came flexibility in premium payments, death benefit options, coverage amounts, and all sorts of other things that they never dreamed of. UL was the beginning of a whole new world of product development in the insurance industry.

    In 1997 the first Indexed UL was introduced. This is a product that is just like any other Universal Life, but with a different way of crediting interest, based on the performance of an external index (such as the S&P 500). Sales of Indexed Universal Life (IUL) were just a drop in the bucket with seven carriers contributing to the just short of $65 million of premium that came in for 1998. Skeptics postulated that the product line would not last long. Little did they realize that the appeal of the product’s higher upside potential would keep consumers interested during low interest rate environments, and the downside guarantees would be especially important (particularly for those who saw the stock market tank after the turn of the century and then again in 2008).

    So where are we today? A new revolution has emerged in the world of IUL. Not only are sales burgeoning, but carriers are jumping at the chance to get into this emerging market. Active carriers are revamping product, doing what they can to offer value-added benefits to the consumer, and trying to catch the attention of the agents.

    At the close of 2009, sales had increased more than 800% over 1998 levels and reached $531 million. Today, 39 carriers compete – a remarkable increase considering that only about half that number were offering product three years ago. Another dozen carriers are currently in research and development on IUL today. All of this excitement leaves the existing carriers who once had large market shares of a smaller IUL market, competing to differentiate themselves in an increasingly cutthroat landscape. Where we once had very few IUL designs, we now have many, including Indexed Universal Life designs with Extended No Lapse Guarantees, single premium plans, survivorship life policies, and even a return-of-premium structure. The market will only continue to intensify in terms of product design.

    With so much happening in the IUL market, let’s go over some of the basics of Indexed Universal Life that differentiate it from a traditional UL plan. There are several types of rates that can affect an IUL plan, depending on the carrier and what their pricing lever is.

    Fixed Strategy Rate – the company-declared rate on the fixed strategy (if any), which would be comparable to traditional UL rates. Fixed strategy rates on IULs today range from 3.50% – 5.80%.

    Guaranteed Rate – the underlying minimum guaranteed interest to be credited on the policy. On a traditional UL, these minimum guarantees usually run 2 – 3%. On an IUL, minimum guarantees typically credit 1 – 2% due to their higher potential for credited gains. It is important to note that on IULs, minimum guarantees are not always credited annually; some credit the guarantee over a five-year period, or even over the lifetime of the policy.

    Index – the underlying external benchmark upon which the crediting of excess interest is based. Fifteen of the 39 carriers in the market today offer an alternative index to the S&P 500 on their product strategies. Indices offered via IUL strategies include Barclay’s bond index, DJIA, Dow Jones World-Ex US, Euro Stoxx 50, Hang Seng, MSCI EAFE, MSCI EM, Nasdaq-100, Russell 2000, S&P 400, and S&P 500.

    Crediting Method – the formula used to determine the excess interest that is credited above the minimum guaranteed rate. There are far less crediting methods identified in the world of IUL than in the world of indexed annuities. Without getting too detailed on the calculations, clients have the option of choosing among annual point-to-point, inverse annual point-to-point, two-year point-to-point, term end point, monthly averaging, daily averaging, monthly point-to-point, fixed, and some minor variations among these strategies today.

    Participation Rate – the percentage of positive index movement credited to the policy. (i.e. If the S&P 500 increased 10%, and the IUL had an annual participation rate of 60%, the policy would receive interest credited of 6% on the policy anniversary). Participation rates on IULs today range from 45% to 160%.

    Cap Rate – the maximum interest rate that will be credited to the policy for the year or period, or the maximum index growth upon which interest will be calculated. (i.e. If the S&P 500 increased 10%, and the IUL had an annual participation rate of 100% and a cap of 8%, the policy would receive interest credited of 8% on the policy anniversary.) Annual point-to-point caps on IULs today range from 8% – 17%.

    Illustrated Rate – the rate at which a carrier decides to hypothetically project the policy values in a sales illustration. On a traditional UL illustration, the policy is projected at the new money or portfolio rate that is declared by the company to be credited annually to the policy (currently around 5%). On an IUL sales illustration, the potential interest credited is based on fixed strategy rates, participation rates, and caps. So how is the insurer to illustrate the plan? The solution was an “illustrated rate.” IUL illustrated rates today range from 4.30% – 10.00%. Agents and clients alike would be wise to note that actual credited rates on IUL will be higher or lower than the illustrated rate on the sales illustration.

    Illustrated Rate Basis– the method upon which the carrier has determined their illustrated rate, by taking into account current participation rates, current caps, and a review of the historical performance of the index measured. The illustrated rate basis varies from a 20-30 year lookback, a 20-year lookback, a 23-year average, a 24-year lookback, a 25-year lookback, a 30-year lookback, a 40-year lookback to even no lookback at all. It is crucial to note that two different carriers using a 20-year lookback do not necessarily use the same calculation for their illustrated rate basis.

    This all raises an interesting discussion. Traditional UL plans are illustrated at the company-declared rate that is credited annually to the policy (in the 4% – 6% range). Variable UL plans, on the other hand, are usually illustrated in the 8% – 10% range; far below the NAIC-imposed maximum. However, there are Indexed UL plans today that are being illustrated as high, and sometimes higher than, their Variable counterparts. Should an IUL with a downside guarantee and an upside cap be illustrated at a rate comparable to a VUL product which has no downside guarantees and unlimited upside potential? Some class-action lawyers in the west think not. I would speculate that litigation will soon force other carriers to reconsider their IUL illustrated rates as well.

    Indexed Universal Life, like any interest-sensitive life insurance, needs to be monitored to see that it is being funded at an appropriate premium level based on the interest earned.

    IUL may be a growing product line, but it has the potential to overshadow sales of fixed UL and VUL, once producers are familiar with ‘the basics.’

     

    Originally Posted on February 7, 2011.

    Categories: Sheryl's Articles
    currency