Indexed Universal Life Insurance Explained

Multiple indexes may be selected by the policyholder. A guaranteed minimum fixed interest rate is usually offered. The fixed and indexed accounts can be allocated to any percentage. Each index is measured during the first month, and the value is compared at the end of the month. The interest is added to the cash value if the index increases during the month. It is credited monthly or annually to the policy. When the index gains 4% between September's beginning and September's end, the 4% is multiplied by the cash value. This amount is added to value. Some policies take the average of the daily gains for a month, while others calculate the index gains as the sum of the changes for the period. Upon indexing, the insurer credits the policy with gains based on a percent rate called the participation rate. It can range from 25% to 100%. For example, if the gain is 4%, the participation rate is 25%, and the current cash value total is $20,000, $200 is added to the cash value. That would be the gain multiplied by the participation rate multiplied by the current cash value. Indexed Universal Life Insurance offers several advantages such as low premiums, cash value accumulation, flexibility. It is also less risky as it does not directly invest in the stock market. Its disadvantages include caps on accumulation percentage. This entails that some insurance companies cap their participation rates at a lower percentage than 100%. Indexed Universal Life policies have more advantages when they have larger face values. Policies with smaller face amounts are not as advantageous. During a declining index, no interest will be credited to the cash value. If you like this video, make sure you demolish that subscribe button and join our notification squad by hitting that bell button.