A quick post to answer recent questions for more information about Equity Indexed Universal Life:
How long is the term for Equity Indexed Universal Life?
Typical term is to age 100. The concept is of a ‘universal’ life insurance product, meaning that it addresses multiple factors and extends for the life of the insured.
I’ve heard that some life insurance policies have cash value. Does this type have cash value?
Yes. In fact, the cash value is the main reason we recommend it for our clients. True, there is a pure life insurance component that pays in at the time of death, like term life pays, but there is also a cash value. Balancing the cash value and the life value through the term of the policy is important in maintaining the full benefits, including tax benefits associated with Equity Indexed Universal Life.
You don’t really expect me to believe that if the stock market goes down by 30%, like it just did, that I won’t lose any value in my Equity Indexed Universal Life policy, do you?
Yes.
Probably a little too short on that last answer. Let me explain.
Equity Indexed means that the investment is indexed to a market index or group of stock, funds, etc. An example would be the S&P 500 which is a collection of specific stocks. The index moves up or down based on the actual, specific moves in the underlying stocks. Your EIUL is held in a separate account by the Insurance company, which pays based on the movement of the index.
The important point is that the insurance company pays….based on the index…. and it is not the value of the individual stocks that deliver earnings or dividends directly to the holder of the EIUL. Therefore, the guarantee of the insurance company is part of the EIUL policy itself and governs the annual valuation.
Since the policy is Indexed, it tracks up and down with an index. Since it has a ceiling and floor built into the valuation, the value can never go below the floor which is usually 0% or +1%.
So, the value can never go below 0% gain and can never lose principal value. The index resets annually, so each year the worst it can do is gain 0%.
Good Questions – keep ‘em coming!
See related posts on this blog:
A Safe Place For Your Money
Eliminate Stock Market Losses
