Typically, the cap is in the 10-15% range. And that is expenses. Known mostly as Indexed Universal Life (IUL) or sometimes as Equity Indexed UL (EIUL), the name may differ, but all these Indexed UL products have interest returns tied to a market index, most commonly the S & P 500 Index, and have a floor guarantee of at least 0% as downside protection against losses. The report for 2016 shows how 10 of these year compare to all the 10 year periods since 1945. They are well thought of in the IUL space. Example of how the insurer invests: Let's say US Government bond interest rates are 3%. Scam #2: Cap Rates. An IUL is a long term life insurance, investment and retirement vehicle that allows the insurer to invest long term. The premium payment goes to the policy cash value, fees, and the insurance costs. But in Life Pro+, Allianz applied a 15% bonus on top of the AG49 rate, which resulted in an actual illustrated rate north of 8.1% after year 10. The most used and simplest to understand S&P 500 index allocation. Changes in IUL Growth Cap Rates from January 2008 to August 2012 When it comes to indexed universal life insurance (IUL) cap rates, Pacific Life’s approach is simple – no wild rides. The blended option gives a 16% Yearly Cap with a 0% floor. No less than six products have been rolled out in the last few weeks – AIG Max Accumulator+ 2019, Principal IUL Accumulator II, Allianz Life Pro+ Advantage, Zurich Wealth Builder IUL, Lincoln WealthAccumulate IUL 2019 PBR and PennMutual Accumulation Builder Flex. since 1945 = 6.16% (with a 10.4% cap), so this measuring period for Allianz is about average. The following charts show actual stock market activity. Some companies offer uncapped potential but have a lower participation rate. Builder IUL® Gen. 8 Effective for Index Periods that start on/after April 16, 2018. The avg. So how did they give it back in the illustration? Cost of insurance charges affect cash value accumulation. But there is another part of the equation. The 10 year period of 2007-2016 = 6.38%, whereas the 10 year avg. According to Wink data, the average cap on IUL contracts is 11.65%. Thanks to the deadline for updating products to the 2017 CSO table, Indexed UL launches have been fast and furious this fall. Allianz has a higher Premium Load, longer/higher admin charge, higher Policy Expense charge. As the index increases, the cash value can also grow. Results vary considerably depending on assumptions. Your cap can vary significantly from one insurance carrier to another. While this isn’t a universal problem, it is a prevalent one. Typically when higher interest rates increase option costs, option budgets are expected to increase as well due to the higher rates. They can’t get you past the benchmark rate so essentially their illustratable value is diminished. Cost of insurance charges affect cash value accumulation. The 6.15% serves as the maximum illustrated rate for any account within the product. IUL carriers reserve the right to lower caps on their Indexed Universal Life policies as interest rates decline, not to trick or trap consumers. With other IUL products, especially those with high caps and low participating loan rates locked in the 5%-6% range, it may be a worth attempting to achieve long-term positive arbitrage using participating loans for retirement income. S&P Core, S&P High Cap 100% Participation Rate 55% Participation Rate 60% Blended Index - 140% Participation Rate 60% True Balance - 200% Core Cap Account 0.25% All others 0% Minimum Account Value Guarantee S&P 500 Index S&P 500 Index S&P 500 Index S&P 500® ML Strategic Balanced Index™ ML Strategic Balanced Index™ 1 Year Point to Point Cap Crediting / Persistency Bonus Index Blend … In Life Pro+ Elite, though, that option is not available. Impact on IUL vs. FIA. IUL Illustration rates will be affected by caps, floors and participation rates of the insurer. Since the release of our first IUL product, Pacific Indexed Accumulator in 2005, we’ve never lowered the nonguaranteed growth cap (cap) rates on any of our products. The cap for the hypothetical account, as stated in the illustration, is 10.25% and it delivers the 6.24% maximum illustrated rate. fixed rate gain is 4.32%. How caps and participation rates are determined Individual Life Insurance Insurance products issued by: Minnesota Life Insurance Company Securian Life Insurance Company Many considerations go into determining the cap or participation rate, which can be periodically adjusted. IUL info (General) 0% Gain Years 1 & 2; 3 Pay vs 5 Pay – QP into IUL; 5 Pay: Level vs Increasing; Accelerated Death Benefit; AG 49A NAIC Illustration Rate Rules 11/20; AG49 Rates – They are a ‘LIE’! The rate is set by the insurance company and can be anywhere from 25% to more than 100%. This crediting can generate growth in the cash value of the policy and can provide larger long-term growth rates vs. whole life policies, etc. Though an index can generate returns above the cap, an IUL’s crediting rate is based on the cap. You will find different life insurance companies offer different cap rates, depending on the IUL policy and the index chosen. Whether or not the additional cap rates justify the additional expenses is part of a fine-tuning process of selecting the best contract for a given situation. Both of these factors are increasing option costs and therefore putting pressures on cap rates. The impact is more prevalent in IUL than Fixed Indexed Annuities (FIAs). After compiling the highest cap rates, among the most favorable were North American, John Hancock, and Allianz, here are a few observations. Cap rates have generally dropped at least a point or two since I began to actively monitor them in 2011 on my website. I estimated 8% in my illustration just to be safe. Allianz has multiple Cap Rates at the moment depending on the Index chosen. According to an analyst with one of the top IUL companies: “You can still use multipliers, par rates, higher caps, [persistency credits] to illustrate up to the actuarial benchmark rate but not any higher when you net out any asset based charges. Regardless, a higher interest rate does not necessarily project the highest cash values or death benefit. Index Crediting Method Par Rate Cap Rate Spread Rate*Rate Max Illustrated S&P 500® PtP 100% 12.00% None 6.96% S&P 500® Mthly PtP 3.15% None 5.26% S&P 500® PtP W/Spread 100% None 4.25% 6.96% Depending on the term of an IUL policy, the maximum crediting rate is capped at between 10% to 13%. … Essentially, this means that if the stock market does really well one year – say, an index return of 25% or 30% – your return won’t reflect that. 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