Results vary considerably depending on assumptions. 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. 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. The higher the cap the more interest can earn. According to Wink data, the average cap on IUL contracts is 11.65%. Results vary considerably depending on assumptions. Cap rate of 13.5%, participation rate of 100%, minimum index floor of 0%, S&P 500 loses 10%. See the attached full product illustration for cap and participation rate information, including guaranteed rates. 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’! 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. Allianz has a higher Premium Load, longer/higher admin charge, higher Policy Expense charge. 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. Cost of insurance charges affect cash value accumulation. Typically, the cap is in the 10-15% range. 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. 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. The range of these caps is as low as 7% and as high as 16% with the average being around 12%. 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. 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. 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. 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 … The 6.15% serves as the maximum illustrated rate for any account within the product. 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. Builder IUL® Gen. 8 Effective for Index Periods that start on/after April 16, 2018. The most used and simplest to understand S&P 500 index allocation. They say they do not have an actual cap history. It has averaged 10.07% over the past 24 years and is very strong. The following charts show actual stock market activity. 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. Allianz has multiple Cap Rates at the moment depending on the Index chosen. The impact is more prevalent in IUL than Fixed Indexed Annuities (FIAs). New Heights IUL, by contrast, has an S&P 500 account with a 0.5% floor and a 9.5% cap, which means that the product has to use a “hypothetical” 0% floor account for calculating AG49 maximum rates. The rate is set by the insurance company and can be anywhere from 25% to more than 100%. 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. How can the insurer guarantee such high returns? Carrier Product Cap Floor AG49 Rate Bonus Interest Credits Multipliers Implied Rate Charge. 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. The interest credited is also subject to a cap rate and cannot exceed the cap rate. Index Caps – Index caps are important to the performance opportunity in the policy. Regardless, a higher interest rate does not necessarily project the highest cash values or death benefit. Why, then, do two products with identical charges have … This is what Life Pro+ Elite took away. Cap rates have generally dropped at least a point or two since I began to actively monitor them in 2011 on my website. Growth Cap Rates? 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. The cap for the hypothetical account, as stated in the illustration, is 10.25% and it delivers the 6.24% maximum illustrated rate. since 1945 = 6.16% (with a 10.4% cap), so this measuring period for Allianz is about average. After compiling the highest cap rates, among the most favorable were North American, John Hancock, and Allianz, here are a few observations. And that is expenses. I estimated 8% in my illustration just to be safe. The blended option gives a 16% Yearly Cap with a 0% floor. IUL carriers reserve the right to lower caps on their Indexed Universal Life policies as interest rates decline, not to trick or trap consumers. Thanks to the deadline for updating products to the 2017 CSO table, Indexed UL launches have been fast and furious this fall. In this case, your investment is tied in an account that underperforms relative to other investments. fixed rate gain is 4.32%. 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. Cap rates vary depending on the type of indexed account and crediting methods. The report for 2016 shows how 10 of these year compare to all the 10 year periods since 1945. Cost of insurance charges affect cash value accumulation. FOUNDATION IUL ® LIFE INSURANCE ... a 15% cap rate and a 0.75% floor rate. The most obvious reason being: it is very unlikely that the historical look back will repeat itself exactly in the future. 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. So how did they give it back in the illustration? See the attached full product illustration for cap and participation rate information, including guaranteed rates. 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. My IUL with Allianz uses the Barclays US Dynamic Balanced Index and has no cap. 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% Cap rates are subject to change, and they can change significantly. Given a bull market, crediting caps are bound to disappoint policyholders. Impact on IUL vs. FIA. Depending on the term of an IUL policy, the maximum crediting rate is capped at between 10% to 13%. The avg. Though an index can generate returns above the cap, an IUL’s crediting rate is based on the cap. Typically when higher interest rates increase option costs, option budgets are expected to increase as well due to the higher rates. product details for annuity professionals. Regardless, a higher interest rate does not necessarily project the highest cash values or death benefit. A participation rate of 70% would deliver that percentage of the index performance. The premium payment goes to the policy cash value, fees, and the insurance costs. 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. Example of how the insurer invests: Let's say US Government bond interest rates are 3%. … They can’t get you past the benchmark rate so essentially their illustratable value is diminished. annuity rates, riders, illustrations and agent tools IUL premium payments are credited with growth according to the policy’s crediting and cap rates. 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. For example, if the gain is 6%, the participation rate is 50%, and the current cash value total is … You will find different life insurance companies offer different cap rates, depending on the IUL policy and the index chosen. *Maximum illustrated rate reflects the requirements of AG49. So, failure number one is the lack of a universally assumed interest rate. 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). Death Benefit Assumptions. Floor, Participation and Cap Rates Floor Rate: ... Allianz is tricky when it comes to IUL. The 10 year period of 2007-2016 = 6.38%, whereas the 10 year avg. 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. Scam #2: Cap Rates. 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. Some companies offer uncapped potential but have a lower participation rate. An IUL is a long term life insurance, investment and retirement vehicle that allows the insurer to invest long term. I would place them second behind Pac Life in the POTENTIAL for cash value growth. In Life Pro+ Elite, though, that option is not available. Cap rate of 13.5%, participation rate of 100%, minimum index floor of 0%, S&P 500 earns 15%. 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