In this case, the index gain is above both the minimum index floor and the index cap rate, meaning that your accrual account gets a 13.5% gain. 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. This is what Life Pro+ Elite took away. The most used and simplest to understand S&P 500 index allocation. Regardless, a higher interest rate does not necessarily project the highest cash values or death benefit. 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. Obviously, Indexed Universal Life growth caps will have to decrease if prevailing interest rates do, since the IUL carriers would have less of an options budget to buy up a higher S&P cap. Builder IUL® Gen. 8 Effective for Index Periods that start on/after April 16, 2018. Typically, the cap is in the 10-15% range. Allianz has a higher Premium Load, longer/higher admin charge, higher Policy Expense charge. Another thing that agents won’t tell you is that IULs typically have cap rates, or a maximum amount you can receive on your return. 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. … 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. See the attached full product illustration for cap and participation rate information, including guaranteed rates. Your cap can vary significantly from one insurance carrier to another. The problem with Allianz, like Pac Life, is the product is expensive and several things have to happen to hit the bonus and credits they illustrate. Allianz has a history of lowering cap rates and participation rates on existing policyholders far below what they offer for newly-issued policies (although Allianz claims this is because of the difference in how those IUL fees were levied). The most obvious reason being: it is very unlikely that the historical look back will repeat itself exactly in the future. Example of how the insurer invests: Let's say US Government bond interest rates are 3%. Indexed Universal Life (IUL) insurance policies credit interest based on changes in an index or set of indices. Both of these factors are increasing option costs and therefore putting pressures on cap rates. Floor, Participation and Cap Rates Floor Rate: ... Allianz is tricky when it comes to IUL. The simple story is that Allianz sets a maximum illustrated rate for the product using an S&P 500 account without a bonus which, right now, has a 10% cap and 6.15% illustrated rate. And that is expenses. 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. IUL premium payments are credited with growth according to the policy’s crediting and cap rates. Death Benefit Assumptions. IUL Illustration rates will be affected by caps, floors and participation rates of the insurer. fixed rate gain is 4.32%. since 1945 = 6.16% (with a 10.4% cap), so this measuring period for Allianz is about average. There are also accompanying charts which show what the IUL performance would have been, had North American’s current index cap and participation rates been applied. 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. As the index increases, the cash value can also grow. The premium payment goes to the policy cash value, fees, and the insurance costs. After compiling the highest cap rates, among the most favorable were North American, John Hancock, and Allianz, here are a few observations. An IUL is a long term life insurance, investment and retirement vehicle that allows the insurer to invest long term. The avg. Given a bull market, crediting caps are bound to disappoint policyholders. Cost of insurance charges affect cash value accumulation. 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’! I would place them second behind Pac Life in the POTENTIAL for cash value growth. Allianz has multiple Cap Rates at the moment depending on the Index chosen. 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 10 year period of 2007-2016 = 6.38%, whereas the 10 year avg. Cost of insurance charges affect cash value accumulation. IUL carriers reserve the right to lower caps on their Indexed Universal Life policies as interest rates decline, not to trick or trap consumers. Impact on IUL vs. FIA. 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 … For example, if the gain is 6%, the participation rate is 50%, and the current cash value total is … In this case, your investment is tied in an account that underperforms relative to other investments. Cap rates have generally dropped at least a point or two since I began to actively monitor them in 2011 on my website. The 6.15% serves as the maximum illustrated rate for any account within the product. The blended option gives a 16% Yearly Cap with a 0% floor. The higher the cap the more interest can earn. Thanks to the deadline for updating products to the 2017 CSO table, Indexed UL launches have been fast and furious this fall. They are well thought of in the IUL space. Growth Cap Rates? The interest credited is also subject to a cap rate and cannot exceed the cap rate. Cap rate of 13.5%, participation rate of 100%, minimum index floor of 0%, S&P 500 loses 10%. Typically when higher interest rates increase option costs, option budgets are expected to increase as well due to the higher rates. Depending on the term of an IUL policy, the maximum crediting rate is capped at between 10% to 13%. The impact is more prevalent in IUL than Fixed Indexed Annuities (FIAs). Some companies offer uncapped potential but have a lower participation rate. The report for 2016 shows how 10 of these year compare to all the 10 year periods since 1945. Results vary considerably depending on assumptions. The rate is set by the insurance company and can be anywhere from 25% to more than 100%. Results vary considerably depending on assumptions. 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. Why, then, do two products with identical charges have … 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. See the attached full product illustration for cap and participation rate information, including guaranteed rates. The following charts show actual stock market activity. *Maximum illustrated rate reflects the requirements of AG49. These caps can change so it is important to use a carrier that has historically held caps steady. 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. product details for annuity professionals. Cap rate of 13.5%, participation rate of 100%, minimum index floor of 0%, S&P 500 earns 15%. In Life Pro+ Elite, though, that option is not available. Max rates use the caps and floors against historical data to determine a reasonable flat rate; however, it is easy to debate the applicability of the interest rate that results from the look back. How can the insurer guarantee such high returns? I estimated 8% in my illustration just to be safe. FOUNDATION IUL ® LIFE INSURANCE ... a 15% cap rate and a 0.75% floor rate. Cap rates have generally dropped at least a point or two since I began to actively monitor them in 2011 on my website. 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. They say they do not have an actual cap history. annuity rates, riders, illustrations and agent tools The cap for the hypothetical account, as stated in the illustration, is 10.25% and it delivers the 6.24% maximum illustrated rate. Allianz True BalanceSM annual sum 200% 6.00% n/a Fixed allocation2 n/a 4.75% n/a 1Caps and participation rates could be subject to change on any policy anniversary. Allianz True BalanceSM annual sum 200% 6.50% n/a Fixed allocation2 n/a 4.75% n/a 1Caps and participation rates could be subject to change on any policy anniversary. They can’t get you past the benchmark rate so essentially their illustratable value is diminished. Though an index can generate returns above the cap, an IUL’s crediting rate is based on the cap. The range of these caps is as low as 7% and as high as 16% with the average being around 12%. Carrier Product Cap Floor AG49 Rate Bonus Interest Credits Multipliers Implied Rate Charge. So, failure number one is the lack of a universally assumed interest rate. But there is another part of the equation. 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% Regardless, a higher interest rate does not necessarily project the highest cash values or death benefit. There is no question that an IUL is one of the best things out there, kind of like your father’s pension plan from his company back in the day. Index Caps – Index caps are important to the performance opportunity in the policy. It has averaged 10.07% over the past 24 years and is very strong. The bonus is only applied to the S&P 500 annual point-to-point account with a much lower cap. 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