Equity Indexed Universal Life Insurance

Equity index universal life insurance is a permanent life insurance policy that offers premium and death benefit flexibility. Like other permanent life insurance policies equity indexed universal life insurance has three components: premium, cash value, and death benefit. Unlike traditional universal life where the interest credited to the policy is based on a fixed crediting rate, the interest credited to the cash value of an equity indexed universal life insurance policy is linked to major market indexes, such as the S&P 500. This allows for a combination of growth potential and death benefit protections.

A indexed universal life insurance policy allows you to allocate some or all of your policy’s net accumulated value to one or more indexed accounts in which the interest credited is based in part on performance of an outside index, subject to a minimum and maximum total growth limit. The amount of interest that can be earned in the indexed account is never less than the guaranteed minimum interest rate (or floor), typically zero percent.

CUSTOMIZE YOUR PREMIUM PAYMENTS

With equity indexed universal life insurance policy you can adjust the amount of each premium payment based on your policy’s death benefit and financial objectives, provided you have enough accumulated value to cover monthly policy expenses. You can also choose your premium schedule.

SEGMENTS

Indexed accounts are comprised of segment. A segment is created each time you transfer from the fixed account into an indexed account or when you reallocate an indexed account’s value upon a segment maturity.

Once a segment has been created it is tracked separately over its segment term. For example, a segment in a 1-year indexed account created on January 1, 2010 would mature on January 1, 2011. It is not uncommon for segment dates and the dates monthly charges and other costs are deducted to be different.

Each segment will have its own cap rate and indexed interest credit. Since you can transfer monthly, you can have up to 12 segments per year. Each segment in your indexed account will earn interest based on the change in the selected index over the life of the segment. The change in the index over the segment period, along with the cap rate, participation rate, and guaranteed minimum interest rate will determine your actual credited interest.

HOW INTEREST CREDITING WORKS

FIXED STRATEGY

Premium payments, minus any premium expense charges are initially credit to the fixed strategy that earns a current interest rate. This rate may vary, but will not be less than the guaranteed minimum interest rate, typically two to three percent. It is important to note the guaranteed minimum interest rate in the fixed strategy often differs from the guaranteed minimum interest rate in an indexed strategy.

INDEXED STRATEGY

CAP RATE

A cap rate or growth cap rate is the maximum amount a segment will be credited based on the growth of the chosen index. The carrier will typically determine the cap rate at the beginning of a segment period. For example, if your equity indexed universal life insurance policy has a cap rate of 12 percent, and the selected index earns 20 percent during the segment period, the policy will be credited the cap rate of 12 percent.

PARTICIPATION RATE

The participation rate is the percentage amount a segment will be credited based on the growth of the chosen index. The carrier will typically determine the participation rate at the beginning of the segment period. For example, if you equity indexed universal life insurance policy has a participation rate of 75 percent, and the selected index earns 20 percent during the segment period, the policy will be credited 15 percent (segment index growth of 20 percent times participation rate of 75%).

There are a number of different equity indexed universal life insurance products available from different life insurance carriers. Each product varies in the way the way it is designed, including, the index strategy, available indexes, segments, and guarantees. To learn more about which equity indexed life insurance policy may be right for you please call (877) 579-9574 or submit an online request for additional information.

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