Indexed Universal Life Explained

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Summarized View: Indexed Universal Life.

 Indexed Universal Life

Life insurance policies have been granted, by U.S. Federal Law, tremendous tax advantages that allow the policyholder to:

  • Pay premiums with after-tax income.
  • Receive death benefit tax-free.
  • Super-Charge investment growth by over-funding the policy to take advantage of tax-deferral.
  • Borrow money from the overfunded amounts in the policy at a very-low interest rate.
  • Lower the amount of Life Insurance in force as one gets older when the cost of insurance gets expensive.
  • Let IUL illustration software show you the maximum amount of cash you can "dump in" to the policy to enjoy "tax deferral" and eventually "tax free" money.

Indexed Universal Life - More Bullet Points.

  • The IUL insurance is the only product in the USA that allows virtually unlimited investments that eventually can be withdrawn tax-free.
  • A Modified Endowment Contract (MEC) happens if too much money is "dumped in." A MEC will cause a taxable event. The insurer will advise you in order to prevent this occurance.
  • An IUL allows the policyholder to enjoy the upside of the stock market yet not lose money when the market goes down.
  • Virtually every Life Insurer in the USA now offers an IUL.
  • NAAIP is Broker General Agency(BGA) for upwards of 25 such Life Carriers.
  • Living Benefits, Accidental Death, LTC, Child & other riders available.

Even More Useful IUL Information.

AG 49 Lookback Period - What is it?

AG 49 is the federal regulation that was fully implemented on March 1, 2016 that mandated a uniform methodology based on the historical performance for interest rates that are shown on IUL illustrations.

AG 49 look back averages the annualized rates from 25 year rolling periods for the past 65 years of the S&P 500 index returns. IUL Illustration rates will be affected by caps, floors and participation rates of the insurer.


How can the insurer guarantee such high returns?

An IUL is a long term life insurance, investment and retirement vehicle that allows the insurer to invest long term. Example of how the insurer invests: Let's say US Government bond interest rates are 3%.

Insurance will invest 97.05% of the account in US Government bonds at the beginning of year so the account will be at 100% by the end the year.

The account will always be at least even. The remainding 2.95% will be invested in a S&P 500 Index Fund "Call Option." A "Call Option" is a financial vehicle that gives exagerated returns if the price moves up while becoming worthless if the price is static or moves down.

There is still the cost of insurance, carrier fees and possible policy loans that lowers the account value. In an extended period of an S&P decline the policy account value would be negatively affected.


An analogy of what a "Call Option" is.

Let's say you rent a house for 2,000 per month, but the landlord gives you option to buy the house at the end of the year by giving him an extra $2,500 at the beginning of the year.

At the end of 12 months, if the house went down in value or even stayed the same, you would not exercize the option and the $2,500 Option investment became worthless.

On the other hand, if house went up in value by 15% you would exercize the option and profit handsomely. Call options are well-established and a long-standing sector in America's financial services industry.


More information about the S&P 500 and the IUL

The IUL insurance is designed to offer 200 basis points (2%) above the current assumption interest rate of the carrier UL's insurance policy.

It should be noted that the S&P 500 index will not credit dividends. It would be wise to show your IUL insurance client a chart of S&P 500 over the last 20 or 30 years.


NAAIP's Case Design Team

NAAIP's CaseDesign Team will provide you using its software an IUL illustration. As well, brochures and applications ussually within the hour. The IUL Kit is always sent to before Noon if requested at night.

Our hours are workdays: 8:30AM to 8:00PM ET. Email all details of your client at casedesign@naaip.org or david@naaip.org on weekends.

Increasingly, carriers are preferring an eTickets/Drop Tickets - Talk to us. IUL Illustrations can be obtained Winflex, carrier sales support, or CaseDesign@naaip.org.

As soon as an agent is appointed with a carrier, agent has access to underwriting, case design, commissions, iul illustration software, etc. from the carrier.

Once contracted the carriers are extremely helpful in providing IUL illustrations, explanations on how to user their IUL software, etc. The exception to the carrier being helpful is Banner Life. Banner wants the upline to be the contact venue for all agent issues.

For Impaired Risk: Contact NAAIP. We will give you a detailed answer on your case in minutes.


NAAIP's Favorite Carriers and Other Important Information.

  • National Life Group – The second largest of seller of IULs in the country. NLG is a mutual insurer which means that it is owned by its policyholders. NLG was founded in 1848 in Montpelier, Vermont and is the second oldest life insurance company in the United States. By far, the fastest growing carrier. Great for small premium finance cases, older ages, monster cases for middle agers and liberal with foreign national business. Living benefits that are far and away the most generous of any carrier. Living benefits are included in all policies. NLG issues policies fast. Up to three million in face amount can be approved instantly. No blood, no urine. Instant. Wow. NLG is consistently ranked in the top two by IUL digest and has high level Comdex ratings.
  • John Hancock's John Hancock is a wholy-owned subsidiary of a multinational company called Manulife Financial of Toronto, Canada. Protection IUL is among my favorite for older clients - over 75 - and for smaller polices. John Hancock has two decent IULs. The Protection IUL is low cost and provides guarantees through life expectancy and generates some nice cash along the way. The other, the Accumulation IUL is designed to over fund and pull cash out as tax free income with a decent number shown on the illustration with the high-capped acount. Both products are available with Vitality that allows clients to reduce premiums and earn points towards half priced Hyatt hotels stay and Royal Caribbean Cruises for healthy living. The client gets a free fit bit that allows John Hancock to track their progress. John Hancock also offers the best true LTC reimbursement rider on the market. If the client engages in the vitality program, it can almost eliminate the cost of the LTC rider. JH excels in the older ages. For older clients looking to finance coverage, we typically add their ROP rider which is used to pay the loan off at death while keeping the death benefit intact. Our John Hancock rep, Andrew Szpiro, is the man and gets stuff done like no one else. John Hancock is also very good with foreign nationals and will allow premium finance for foreign nationals.
  • Allianz Life is part of a German multinational financial service company based in Munich, Germany. Its IUL is sold as an for getting cash out of the policy for tax free income purposes. The negative is Allianz IUL's very high management fees which cause negative returns. Lots of cancellations, especially during the first few years. Allianz's parent company Allianz's illustrations show a sweet spot between ages 40 and 45. Allianz offers many unique index options, including the Bloomberg US Dynamic Balance Index II. (BUDBI II). It’s uncapped with a 145% participation rate. That’s just one of many options to choose from and the client is able to make changes every five years. Allianz IUL offers the S&P, but most clients choose other options. Allianz also offers a guaranteed interest bonus (6%) starting in policy year 1. Finally, NAAIP is very close to many of their executives and actuaries personally so we get some additional love.
  • Protective Life GIUL. Great guaranteed IUL insurance. We can get guaranteed DB out to age 100 or close and still have the benefit of participating in the index. Protective also offers a decent LTC rider and can annuitize the death benefit payout if the client so desires. Protective's latest living benefit rider allows one to guarantee the death benefit to 95 lowering the cost of insurance significantly. If the client goes on claim, the death benefit is still paid out. Protective Life also provide great sales ideas at www.sellwhatmatters.com.
  • Columbus Life is consistently ranked in the top three IULs by IUL digest. They are owned by Western Southern and have a 96 Comdex rating. Columbus Life offers as table shave program from table 3 to STD up to age 70 and 1 mil in DB. Columbus Life index options are all based off the S&P, but they offer an annual uncapped strategy with a spread. The client gets the first 8%, Columbus Life gets the next 4% and the client gets everything after that. It’s pretty attractive. Columbus Life also has high targets and the ability to blend them in the event you need to compete. Finally, Columbus Life has one of the best no cost accelerated death benefit riders in the industry. It comes with every policy they issue and can be used to offset LTC expenses. Columbus Life also offers some of the highest target commissions in the industry. The target can be dialed up and down as well. Columbus Life has made some recent adjustments that allow for even more cash to be taken out of their policies. Offers guaranteed insurability riders which is good for child policies. Regarding compensation, when you look at the size of the commissionable target premiums, the comp is on par with everyone else, but optically, they are at a disadvantage.
  • North American - A very good guaranteed IUL. I prefer working with Protective, but their products are all pretty good. Offers guaranteed insurability riders which is good for child policies.
  • American National – good IUL, good living benefits. Not as good as NLG ANICO IUL Brochure - 24 Pages.
  • Nationwide Life has an IUL very similar to NLG’s low cost IUL insurance. Nationwide also "borrowed" JH's LTC rider and made it an indemnification rider vs. reimbursement.
  • Pacific Life: Decent products, good carrier, not my go to per se. Pacific Life has some of the highest carrier expenses in the industry which really makes this product a NO-GO. Pacific Life illustrates well, but they are not transparent and they are not very broker friendly. That being said, years ago have written some monster cases with them before their expenses become so high.
  • Minnesota Life offers a bunch of good products. However, Minnesota is not as good as NLG and they have a very low retention – 2 mil. That means they go to reinsurance on every case over 2 mil. However, Minnesota has their place in the line-up.
  • Ameritas Flex IUL: new kids on the block, but they are competing in the living living arena. A little better than American National but not as good as NLG. At one point, Ameritas IUL was ranked number one by IUL digest.
  • Mutual of Omaha’s new IUL is decent. Mutual of Omaha allows premium financing up to age 81 and as low as 1 mil, but the cases fall apart in the mid 90’s.
  • Zurich Life – their cost of insurance is pretty high, so client’s aren’t getting as much cash value as other carriers, but Zurich is good with foreign nationals. Supposedly they are coming out with a high early cash value rider in December, 2020 that will guaranty 100% CSV in year one. However, the compensation will be low and spread out.

Talk to us. We will walk you through contracting, IUL illustrations and submitting your first case.



*A big Thank You to Brett Anderson of IUL Digest in helping NAAIP compile the above information. The information provided is intended for licensed iul insurance agents only. It is not intended for the purpose of advertising the IUL insurance products to the general public.


What is an IUL? - Answered by National Life Group

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