What Is Equity Indexed Universal Life Insurance?

By: Kenneth Ford
The product is based on traditional Universal Life, which includes a number of advantages. These advantages include flexible premium payments, low cost permanent life insurance, tax deferred growth of cash values, tied to a stock market index, with no downward movements allowed. The policy has loans available, tax free death benefits and the ability to adjust the policy to meet specific personal or business needs.
The major difference with equity indexed universal life is that you participate indirectly in the upward movement of a stock market index, without accepting the normal risk associated with such investment.The actual interest credited to a policy's cash value is determined by the annual changes of an equities index, most programs utilize the S & P 500 as the underlying index for their EIUL products. The most unique aspect of EIUL, is that in years where the Underlying index increases, the account value increases by that percentage up to a cap limit, which is hovering around 15% at this juncture. In years where the underlying index is flat or loses value, the cash value suffers no decrease, maintaining the value from the previous gains. This is the real value of EIUL, there is no risk of losing value in a down market. Some products offer a guaranteed annual return for policies maintained over a certain period of time. EIUL is a long term investment vehicle, it will not provide optimal returns over the short term.
The advantage of life insurance as a retirement vehicle, that is often overlooked, is the ability to take tax free loans, after a given funding period. Combined with the capability of funding the life insurance portion to minimum face value, a powerful hybrid tool with exceptional performance features is created. The concept can be illustrated via webinar, or a personal presentation. The power of tax free growth, combined with tax free withdrawal, is as attractive as it gets in long term investment today. Why not see for yourself?
Obviously, obtaining a financially secure insurance company with a history of integrity is important in buying any life insurance policy. AM Best and other independent ratings services are readily available to help determine the companies financial strength, and hence its ability to continue to credit policyholders with fair returns, as well as pay liabilities incurred by the death of policy holders. The performance of the policy will be impacted more by the quality of the insurance company, that in the performance of the S & P 500. The most effective way to ensure the performance of a policy is in accordance with the goals of the policy holder, after careful selection of an appropriate advisor company and product, is to annually review the performance of the policy, and make corrections where necessary. Remember, a great advantage of Universal life is its flexibility, with respect to premiums, face value and cost of insurance, but it may also be a disadvantage. Ensure that the contract clearly defines participation rates and that the cap rates are realistic. An illustration is based on today's factors, and can not anticipate without assumptions, the value of markets in the future. These assumptions are generally based on a modest interest rate, well within the historical average parameters, but in comparing products, ensure that similar rates are part of the assumptions. The product selection you make should be based on these and other factors that you and your agent uncover during the due diligence process. These factors should be discussed prior to initiating the search for an EIUL policy, to enable an effective search, uninhibited by preconceived notions that may or may not reflect the goal of a prospective client.

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