Indexed Universal Life – Looking Under the Hood
Posted on February 11, 2010 in Product & Carrier Intelligence
Author: Glen A. Coral CLU, ChFC
Director, Advanced Markets Planning
Indexed Universal Life (IUL) policies provide an opportunity to indirectly participate in the growth of a stock market index without assuming the normal risk of direct investing. Some Indexed Universal Life marketers have suggested IUL products are designed for those who would prefer the security of a fixed product but would like to participate in potential equity market growth. Others suggest they are for the purchaser who is willing to take risk but likes some guaranteed downside protection. Regardless of the viewpoint, these products have garnered appeal in the volatile markets we face today and have found their way into some advance insurance planning applications.
Indexed Annuities have been marketed for many years, so it was only a matter of time before IUL products were brought to the market. Several insurance companies have existing products and others are entertaining adding an IUL product to their offerings. At the time this article was written, at least one notable company had rejected developing a product, instead concentrating on its existing traditional UL, Whole Life and Variable UL (VUL) products to provide the growth opportunity and protection features for which it believes consumers are looking.
The process of evaluating IUL products’ many different features and benefit configurations makes it difficult for consumers, let alone agents, to determine the best design. IUL products are not without risks and their inner workings are anything but transparent. Remember that the costs of operating IUL policies are higher than traditional fixed products. Also, there are a few questions to ask when evaluating IUL products: Is the potential upside significant enough to offset higher internal costs to provide long term value? Are there hidden costs? And, since IUL is a fixed product supported by the general account of the insurance company, how can the policy provide equity market growth?
To read the full version of this whitepaper on Indexed Universal Life – Looking Under the Hood, please contact Glen Coral at 610-862-2236.