Index Account Made Simple
Indexed Universal Life Insurance provides two main advantages. Death benefit protection and an Index Account that shields you from negative returns through a zero percent floor and subject to cap. Here’s an example of how the Index Account works in simple terms.
RULES OF THE GAME:
If the Index Account were a game of football and the football team an Index Selection in a life insurance policy, here’s how the rules would change: Perpetual first down. No negative yards. Gain up to a maximum of 12 yards per play.
Take a look at what happens with these “new rules.”
Pick your favorite quarterback. His team has the ball and is starting out on the 20 yard line.
Play 1 (red): Your quarterback throws for a 10-yard gain! The ball is on the 30 yard line.
Play 2 (blue): Your quarterback is sacked at the 12 yard line for an 18-yard loss. However, we’ve changed the rules so that instead of losing yards, the ball is on the 30 yard line where the play began, and it’s still first down.
Play 3 (orange): Your quarterback throws for a 8-yard gain. The ball is on the 38 yard line, and it’s still first down.
Play 4 (purple): Your quarterback throws for a 19-yard gain. The 12-yard maximum kicks in; as a result, your team has to “give back” seven of the yards. The net result is a gain of 12 yards, and the ball is on the 50 yard line.
Under normal rules, the team would have gained a total of 19 yards (gains of 10, 8, and 19 with a loss of 18 yards) and the ball would be on the 39 yard line. However, with the new rules, the team gained 30 yards and the ball is at the 50 yard line. As a result, an extra 11 yards downfield!
WHAT DOES THIS MEAN FOR YOU?
Imagine if the football team was an Index Selection in a life insurance policy. The maximum 12-yard rule represents the cap rate, and the fact you never lose yards is similar to a no downside risk. Each play is a year and the yardage gains are locked in interest crediting!