Indexed universal life
More moving parts than whole life. Here are the ones that can move against you.
01 — WHAT IT IS
Indexed universal life ties part of your policy's growth to the performance of a market index, with a floor so a bad year does not reduce it, and a cap or participation rate that limits what you get in a good one.
The illustration you get shown is a projection, not a promise. That single sentence is the most important thing on this page. An illustration is a model built on assumptions, and the assumptions are the product.
02 — THE RISK
What can move against you
The cap can change
The insurance company can adjust caps and participation rates over the life of the policy. The number on the illustration you were shown at the start is not fixed for forty years.
The cost of insurance rises as you age
Charges come out of the policy every year and they get bigger as you get older. If the growth does not keep up, the policy consumes itself.
Underfunding is the usual failure
These policies are frequently sold on the minimum premium that makes the illustration work. Pay the minimum through a decade of mediocre returns and the policy can lapse, often at the age you least want it to.
A floor is not the same as a gain
A zero-percent floor means a bad year does not reduce your index credit. It does not mean the year cost you nothing; the charges still came out.
03 — WHERE I LAND
So would I sell you one
I sell these and I think they are the right answer for some people. I also think this is the product most often sold to people it is wrong for, by someone showing them a chart going up and to the right.
If you want one, I will run the illustration at a realistic rate and at a bad one, and we will look at both. If the bad one does not survive, the answer is no.
Ask me the awkward one
Whether you want to do this job or you are working out what cover you need, the first message is the same: tell me what is actually going on and I will tell you what I would do — including when the answer is that you should keep your money.