When positioning life insurance from a perspective of potential cash value build-up, there are various product types to consider, each with its own straightforward, distinguishing features. For aggressive risk profiles, variable life products—which may be fully exposed to the ups and downs of the market—may be appropriate. On the other end of the spectrum, fixed universal or whole life contracts with guarantees may be more suitable for a risk-averse client.
In between those extremes are index universal life products, where the lines between similar products can become distorted with very different features. Guarantees and safeguards are available with many, but not all contracts and accumulation strategies vary from simple and conservative to complex and aggressive.
On its face, traditional index universal life (IUL) is simple and straightforward. The policy owner trades some upside potential in the form of a cap in return for downside protection in the form of a floor. But the reality of the current IUL marketplace is far more complex and nuanced than that.
The array of index account options available today is vast. They range from the simple and straightforward cap- and floor-tied; to the Standard & Poor’s 500 Index (S&P 500); to those with multiple underlying indexes; to some that may include global exposure and a variety of caps, participation rates, bonuses, and index credit multipliers; or any combination thereof.