You can’t have your cake and eat it too, but index universal life insurance has enabled many policyholders to come close.
The product started with detractors and an uncertain future in 1997, but sales today have never been stronger. The number and types of indices the products now offer and the increase in look-back periods they now provide are lessening volatility and providing for more robust returns, making for a 10th anniversary worth celebrating.
When IUL was introduced, index annuities had already been around for a few years, so people were comfortable with basic indexing theory–i.e., the amount of interest the policy credits is tied, in part, to the performance of a particular index. The policyholder doesn’t purchase any shares in the index, but in years when the index performs well, the interest crediting rate rises; in off years, it falls, usually subject to a minimum crediting rate floor.
From the start, IUL satisfied a basic need in the marketplace. Consumers wanted higher returns, but also a guaranteed minimum interest rate. This is still the case.
In addition, consumers don’t want to be bothered with–nor are some clients equipped with–the ability to undertake managing a product that has variables requiring a constant eye. Think of an IUL as a wrist watch: When it comes to a watch, most people don’t want to know, or even care, how it works, only that it does, particularly when they need it. Similarly, consumers want performance, guarantees and a product they don’t have to babysit.
IUL has helped to fill that void, and as such, fits nicely between variable universal life insurance and regular UL insurance.
Today’s IULs offer multiple indices, even from multiple countries, to further reduce volatility and increase potential for gains through diversification. A variety of “look-back periods” (which are used in computing changes in the index value) are also available in today’s designs. Add to that the automatic crediting methodologies of some IULs and the overall inherent flexibility of ULs in general, and it is clear this product has come far in just 10 years.
IUL’s most appealing advantage is its upside cash accumulation potential with downside protection. Particularly for those who experienced the stock market of 2001-2002, those advantages are quite attractive.