According to research, the equity-indexed universal life (EIUL) insurance is one of the most misunderstood insurance products in the market.
This article comprehensively overviews the policy’s principles, operations, and administration.
Understanding Equity-Indexed Universal Life (EIUL) Insurance
EIUL is a permanent life insurance policy that links its performance to a stock market index. Potential investors might need assistance understanding how this policy functions before investing in it, as it is more complicated than other permanent life insurance plans.
Like all universal life insurance policies, equity-indexed universal life (EIUL) insurance accrues a cash value that the policyholder can borrow against, invest in, and use to cover increases in insurance costs. The insured may be able to stop paying out-of-pocket premiums should the cash value exceed the increases in insurance costs.
Why is the EIUL so popular?
The sale of the policy got easier during the economic disaster a decade ago, which is still felt by some people today. It’s now marketed as a conservative alternative to variable universal life insurance.
The policy floor, set by the carrier, distinguishes EIUL insurance from a VUL policy and enables it to be marketed more conservatively. The majority of carriers set their base at 0%.
Suppose the index the plan is tracking has a negative return and the policy floor is 0%. In that case, the policy would be credited with 0%. Although it should be emphasized that although the return is not negative, its cash value will still decrease because of the policy charges deducted every month.
The cap, which limits the rate of return credited to the insurance policy, also limits the policy’s upside. The policy can only be credited 10% if the related index returns 15% and the cap is 10%. The carrier determines the cap, which frequently reflects the cost of the hedges used in the product.
The percentage of actual index return used when crediting the policy determined by the carrier is known as the participation rate.
For instance, according to the cap rate, 100% of the actual performance will be used if the participation rate is 100%. Again, depending on the limit rate, if 200% is applied, an index returning 5% will generate a crediting rate of 10%.
The carrier does not always guarantee all three policy elementsâ€â€the floor, the cap, and the participation rate. For instance, while the floor or participation rate may be guaranteed, the cap may fluctuate based on carrier costs. Verify the details of the policy with the carriers before you buy it.
There is a supplemental death benefit guarantee included with some of the policies. No matter what occurs in the equity market, the policy will continue to be in effect as long as the premiums are paid in full and on time. EIUL plans without a supplemental death benefit guarantee will expire once the policy’s cash value reaches zero, and no more premium payments are expected.
Like all universal life plans lacking a secondary death benefit guarantee, the higher the assumed rate of return for the policy, the lower the anticipated premium requirement.
Even though the policy is linked to an equity index, it functions more like a current assumption universal life policy, which is a fixed product. Therefore, the policy’s assumed rate of return should probably be closer to fixed returns than equity returns.
You must comprehend how the policy operates and what reasonable expectations are for the performance of the policy in the future if you incorporate one of these insurance policies into your trust.
Contact Information:
Email: [email protected]
Phone: 2564383071
