indexed universal life? Flashcards
What is indexed universal life?
Indexed universal life is like other universal life insurance
products in the following ways. They both have…
A death benefit that’s generally free from federal
income taxes.1
The potential (and tax-deferred) growth of a policy
cash value that can be used for living needs.2
A fixed account that pays a guaranteed minimum
interest rate.
A no-lapse guarantee provision.3
The costs typically associated with life insurance
coverage.
Flexible policy features that can be adjusted as
insurance and financial priorities change. For example,
policy owners can determine the amount and timing of
premium payments and can increase or decrease the
policy’s death benefit after the policy is issued.
4
Indexed universal life combines the features of universal
life with the opportunity to earn tax-deferred interest on
the interest credits linked to the performance of one or
more stock market indices. This feature gives your clients
the potential for strong cash value accumulation without
the risk of investing directly in the stock market.
Target markets
Indexed universal life products are ideal for clients who
need a death benefit coverage but want the
potential for cash value growth without the market risk.
With their many features and options, Midland National’s
indexed universal life products can meet virtually any
person’s insurance needs, but are best suited for the
following markets:
* Personal markets: family protection, retirement
planning, mortgage protection, and longevity planning.
* Business markets: Non-qualified deferred
compensation, retirement planning, executive bonus,
and key employee plans.
How indexed universal life works
Purchasing an indexed universal life product is not an investment in the stock market. While interest credited in an
index account is based on a selected index, funds are not invested in the stocks that make up each index, therefore
an index does not include dividends paid by the underlying companies.
1. As premiums are paid, a portion is used for the costs associated with life insurance coverage; the rest is directed to
an account that earns interest depending on the accounts selected.
2. Policyowners can choose to have premiums allocated to an account that offers a fixed rate of return (called a fixed
account); to an index account; or to a combination of both.
3. With an index account, interest credited is linked to the growth (if any) of a stock market index, which is a well-known numerical value used to measure the performance of a group of stocks.
4. When the premium is allocated to an index account, an index segment is created, and the beginning value of the
index is recorded. At the end of a designated period (also known as an “index period”), the index value is used to
calculate the index growth for the index period. The specific calculation depends on the Index Crediting Method.
a. If the index growth is positive, interest is credited to the policy’s cash value; the interest for that period is locked
in and a new index period begins. Interest credited may be subject to an index cap, participation rate, and/or
spread rate.
b. If the index growth is negative, the value in the index account will remain the same. In no case will the interest
credited be less than zero percent. In this way, indexed universal life provides the opportunity for clients to earn
interest based on the upward movement of the selected index but offers downside protection from a declining
market.
5. On each monthly anniversary, deductions are made from the account value. The monthly deductions will reduce
the amount in the index account and/or the fixed account.
Index segments
The following points summarize the general process for index segments:
* Every time new money is received and allocated to the index account, a separate index segment (also known as a
“bucket”) is created. This applies to initial and ongoing premiums plus interest earned. Thus, a policy can have many
different index segments at one time.
* Each index segment has its own 12-month index period and its own Index Crediting Date.
* The beginning index value for each index segment is the index value on the day that index segment is created.
* Monthly deductions are made throughout the index period.
* At the end of each index period, the amount in the Index Segment plus any growth (based on index performance) starts
a new index period. (The value in each index segment does NOT grow until the end of the 12-month index period.)
* The total index account value equals the sum of all index segments.
Index Segment 1:
Premium of $500 paid on June 30
Midland National’s indexed universal life products offer…
* Premiums allocated immediately to the selected index.5
* Daily Buckets – each index segment is created on the day the premium is allocated to an Index Selection.
