Compare Equity Indexed Insurance

What is the financial rating of the insurance company?
Financial ratings are available from the independent ratings services. These independent services include AM Best, Standard & Poor’s, Moody’s, Fitch and Weiss Research. Each of the independent rating services has its own criteria for ranking insurance companies. Click here to see list of financial rankings and criteria. We recommend using companies that have at least an “A” rating with AM Best but prefer “A+”.

What is the illustrated index credited interest rate?
Pay careful attention to the index credit rate that is “projected” on the actual life insurance illustration. Make sure that when comparing policies that this rate is equal. A 1% difference in illustrated rates will have a significant difference in cash value projections over a 20 or 30 year time period.

Is there a guaranteed minimum interest rate?
With most equity index policies, the insurance company will guarantee a minimum interest rate over a specified period of time. In other words, even if cash values are placed in indexed accounts that earn no interest over the index segment, most insurance companies will credit at least a minimum guaranteed interest rate. The minimum rate varies with insurance companies and how they apply it but can be up to 2% a year compounded annually over the index segment.

What is the current index cap rate? What is the guaranteed minimum cap rate?
Index cap rates vary by insurer but on average are around 10-14%. If a current index cap rate is significantly higher than 14 %, the projection may be unrealistic. For more details on index cap rates see, “What Determines the Participation Rate and Growth Cap?”

The index cap rate is variable and subject to increases or decreases based on economic conditions. However, the cap rate cannot be reduced below the guaranteed minimum rate noted in the policy. Understand the minimum policy guarantees and the potential impact of policy changes. For example, as soon as the cap rate is reduced, cash value growth potential is reduced.

What is the current participation rate? What is the guaranteed participation rate?
With most companies, the current and guaranteed participation rate is 100%. If the participation rate is not guaranteed to be 100%, the policy may be inferior assuming identical interest crediting strategies.

To Top

What is the index floor?
The index floor with all companies should be 0%. Equity indexed universal life insurance is not a security and therefore doesn’t invest in any instruments that risk principal. In no way can any interest credit be less than 0%.

How many index account options are available?
The primary index account option offered by all insurance companies is the S & P 500 Index® (1). However, one insurer offers the Dow Jones Industrial Average (2) and the NASDAQ-100 Index® (3) as well as the S&P 500 Index® option. Each index is made up of different companies and measures a slightly different mix of industries. Make sure you select the index account option that meets your overall objectives.

How many index crediting methods are available?
The index crediting method is the process used to determine the actual index credit at the end of an index segment. There are basically two index crediting methods utilized by companies offering indexed life: the annual point-to-point method and the daily averaging method. The annual point-to-point method is the most widely used method but there is no guarantee that one method will return a higher interest credit over time.

How long are the index segment periods?
The indexed segment period is the length of time over which funds allocated to an index account or index strategy must remain. Index interest rate credits are usually credited annually at the index segment anniversary. At the end of the index segment period, account values can be moved to the fixed account or another index strategy. Many companies offering equity-indexed life polices have more than one index segment period option. The shortest index segment is 1 year but some companies require up to a 6 year index segment period. As a general rule, the shorter the indexed account period the better.

What are the transfer provisions among accounts?
Transfers are movements of cash values among account options. Many companies restrict the movement of cash values from one account option to another before the end of the account segment period. Other companies will allow transfers among accounts but any transfer before the end of the index segment will result in any interest credits being forfeited. Most companies do not allow partial index credits on transfers prior to the end of a given index segment period.

What are the policy charges and fees associated with equity indexed life policies?
Policy fees associated with indexed life include premium loads, administrative fees, sales charges, and costs of insurance. As is the case with universal life, the policy fees and expenses associated with equity indexed life can be isolated and easily compared. Fees and costs will vary among insurance companies so a careful analysis is warranted.

To Top

How long are the policy surrender charges?
Surrender charges are actually policy charges upon a surrender of cash values during the first several years of any universal or whole life policy. Surrender charges are generally a percentage of cash values that decreases over a specified time period and eventually becomes zero at the end of the surrender period. Surrender periods vary among insurance companies but usually range from the first 10-15 policy years. The shorter the policies surrender period, the better it is for the policyholder.

How are loans treated? Do the companies offer fixed or variable loans or both?
Many companies offer a current fixed loan interest rate of 2.25%-5%. At the same time, the cash values of loaned funds are currently earning about 2%-3%. Therefore, there is essentially a .25%-3% spreads on fixed loan funds.

After certain number of years and depending on the insurance company, preferred loans or zero interest loans may be available. Preferred loans actually credit an interest rate on the cash value of borrowed funds that matches the interest loan rate on these same funds essentially netting a zero cost loan. Some companies offer preferred loans after the first 5 policy years and other after the first 10 policy years.

Variable rate loans are available with several companies. They offer the policyholder the option of maintaining loaned funds in the indexed account while the funds are borrowed. A current variable market loan interest rate is charge on borrowed funds based on the Moody’s Corporate Bond Yield Average. At the same time, the loaned funds continue to participate in the upward movement of the underlying index and will be credited with the actual index performance subject to the growth cap and participation rate. In periods where the underlying index is rising, variable rate loans may allow for cash value growth above and beyond the actual loan interest charged. The risk with variable loans is that index will not grow and the actual index credits will be lower than the loan rate.

How long is the death benefit guaranteed?
The death benefit guarantee period is the period the insurance company will guarantee the insurance as long as a minimum premium is paid on time. Many companies offering equity indexed universal life offer a minimum death benefit guarantee of at least the first 5 policy years. Some companies, subject to age limitations, will offer policy guarantees up to 15 years. There are also a few companies that will allow you to pay a higher premium and get a lifetime guaranteed policy. Policies guaranteed for life are guaranteed never to lapse as long as the required policy premium is paid on time.

What policy riders are available?
Insurance policy riders are additional policy benefits that can be added to the policy for an additional fee. All companies offer a selection of policy riders. These riders may or may not be important given your individual circumstances. The important point to note is that you should investigate all available policy riders to determine how they compare and if you should consider adding any to your policy based on your specific needs.

Final Analysis
Equity indexed insurance policies have many variables to review and consider before you can make the right policy choice. Evaluating each policy option and comparing policies based on a list of established criteria will help you identify the best equity indexed universal life policy given your goals and objectives.

Indexed Life Insurance Quote Comparison

To Top

(1) The S & P 500 (Standard and Poor’s Composite Price Index) is composed of 500 commons stocks representing major U.S. industry sectors.
“ Standard and Poor’s®,” “S & P®,” “S & P 500®,” “Standard & Poor’s 500,” and “500” are trademarks of The McGraw-Hill Companies, Inc.
(2) “Dow Jones” and “DOW JONES INDUSTRIAL AVERAGE (DJIA) COMPOSITE STOCK INDEX” are service marks of Dow Jones & Company, Inc.
This product is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing such a policy.
(3) The NASDAQ-100®, NASDAQ-100 INDEX® and NASDAQ® are registered trademarks of the NASDAQ Stock Market Inc. (which with it affiliates are the “Corporations”). This product has not been passed on by the Corporations as to their legality or suitability. This product is not issued, endorsed, sold or promoted by the Corporations. THE COPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THIS PRODUCT. THE INDEX DOES NOT INCLUDE DIVIDENDS PAID BY THE UNDERLYING COMPANIES.