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MRDT Member

by: Zeus Design


Universal Life Insurance

Equity Indexed Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z


Accumulated Value
Total premiums payment minus insurance costs, expenses and other policy charges accumulated in the policy with interest.

Administrative Charges
An amount deducted from the accumulated cash value each month or upon an increase in the policy’s face amount.

Amount at Risk
The net amount of insurance at risk is the amount by which the life insurance death benefit exceeds the policy’s cash accumulation value. Actual insurance costs are determined by multiplying the net amount of insurance at risk by the insurance company’s costs factor based on the age, gender and health of the insured.

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Cash Surrender Value
The cash surrender value is the total accumulated cash value reduced by any applicable surrender charge and any policy loan debt.

Cost of Insurance Charge
An amount deducted from the accumulated value each month for the cost of providing insurance, including insurance related expenses and mortality. Actual insurance costs are determined by multiplying the net amount of insurance at risk by the insurance company’s costs factor based on the age, gender and health of the insured.

Coverage Charge
An amount deducted from the accumulated cash value each month. Coverage charges vary based on the insurance company.

Cumulative Guarantee
Depending on the insurance company, at the end of indexed period or segment term a cumulative guaranteed interest rate is credited if the policy’s index credits do not equal r exceed the cumulative guarantee. For example, one company’s cumulative guarantee states that at the end of the 5-year segment term, the segment value will be increased, if necessary, so that a guaranteed effective annual interest rate of 2.0% applies over the 5-year segment term. Any amount transferred out of the segment before the end of the 5-year term will not be included in this calculation except for conforming deductions and bailout transfers.

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Fixed Account
Cash value account that pays a fixed interest rate based on the insurance company’s investment returns and management expertise. The fixed account usually earns current interest at a rate not less than the fixed account guaranteed interest rate. The current non-guaranteed interest rate will vary based on the insurance company. The minimum guaranteed rate is usually around 2- 3% annually.

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Growth Cap
The growth cap establishes the maximum percentage index interest credit for a given index period or index segment. The cap is not guaranteed and may fluctuate based on market conditions. Each company has a guaranteed minimum growth cap.

Growth Floor
The growth floor is the minimum percentage index interest credit for a given index period or index segment. With all companies, the minimum index credit is 0% if the index growth rate is negative for a segment year.

Guideline Minimum Death Benefit
The minimum required death benefit, as determined each month, in order for the policy to qualify as life insurance under the Internal Revenue Code if the Guideline Premium death benefit qualifications test is chosen.

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Index
An equity index or stock index is designed to measure the performance of a group of companies in a specified segment or market. The most common index used with equity indexed insurance is the Standard & Poor's 500® Composite Stock Price Index (“S&P 500 Index”), excluding dividends. The NASDAQ-100 Index® and the Dow Jones Industrial Average (DJIA) may also be available index choices depending on the insurance company.

Index Credit
The index credit is the actual credited interest rate for a given index period or index segment. Index credits are calculated by multiplying the applicable participation rate times the segment growth rate over the index period. The index credit is subject to the current growth cap rate and growth floor. Any index credits are applied on segment anniversary. Index credits will never be less than 0%.

Index Crediting Method
Index credit methods are the way an insurance company measures the index performance over the year. There are commonly used index crediting methods:

1. Point-to-Point - Looks at only beginning and ending values
2. Averaging Method - Looks at average value throughout the year.

Index Growth Rate
The index growth rate is the percentage increase in the actual stock index over a specified earnings period.

Index Period or Segment Growth Period
The index period is length of time over which index growth is measured. Index periods vary among insurance companies. Some companies offer one year index periods while others have 5 year segment growth periods.

Index Participation Rate
The percentage of the index growth rate that is available to be credited subject to the growth cap and growth floor. The participation rate is 100% with most EIUL policies.

Index Cap
The maximum indexed interest rate that is credited to the policy for a given index period. The index cap or growth cap varies among insurance companies.

Index Floor
The minimum indexed interest rate that is credited to the policy for a given index period. The index floor is guaranteed never to be lower than 0%.

Index Number
The published value of the underlying equities index which is generally the value as of the close of business the day prior to the date it is used.

Indexed Account
The indexed account earns interest credits based on the percentage change in value of the underlying stock index subject to a growth floor and growth cap. The Indexed Account consists of indexed account segments or index periods.

Indexed Account Segment
Each time a transfer is made to the index account, an indexed account segment is created. Each segment has its own growth cap, participation rate and index period or index segment.

Indexed Account Value
The indexed account value is the sum of the values of all index segments. The value of a segment on any day after the segment date is equal to the value of the segment as of the prior day minus the amount of any deductions or transfers from the segment since the prior day plus any index credits earned on the Segment since the prior day.

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Net Amount of Insurance at Risk
The net amount of insurance at risk is the amount by which the life insurance death benefit exceeds the policy’s cash accumulation value. Actual insurance costs are determined by multiplying the net amount of insurance at risk by the insurance company’s costs factor based on the age, gender and health of the insured.

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Partial Surrender or Partial Withdrawal
A partial surrender is the distribution of a portion of the cash surrender value to the policy owner.

Participation Rate
The participation rate is the percentage factor used in calculating the index credit for each index period or segment. The participation rate is non guaranteed and subject to change at the beginning of any index segment period. Participation rates vary among insurance companies.

Planned Periodic Premium
The amount billed to the policy owner each premium due date. Premium payments can be made annually, semi-annually, quarterly or by monthly electronic funds transfer.

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Segment Anniversary
The segment anniversary is the date on which an index segment year is completed. Each index segment has its own segment anniversary at the end of each segment year. It is common for segment anniversaries not to fall on Policy Anniversaries.

Segment Date
The segment date is the date a segment is created. Each segment has its own segment date.

Segment Growth Rate
The segment growth rate is the percentage change in the underlying index over the index period multiplied by the participation rate and then applied to the growth cap and growth floor. The segment growth rate will never be higher than the segment growth cap and will never be lower than the growth floor.

Segment Maturity
Each indexed account segment matures at the end of its segment term. The value in the segment at such time, including any index credits, is applied to a new segment, unless you transfer a portion, or all, of the value to the fixed account or if available another indexed account. Once a segment matures a new segment begins immediately.

Segment/Segment Term
Each time cash is transferred from the fixed account to the indexed account, a new indexed account segment, or segment is created. The indexed segment or index period will vary among competiting insurance companies. At the end of each year is the segment anniversary. Index credits are calculated and applied at the segment anniversary.

Seven-Pay Premium Limitation
The 7-pay premium is the maximum total premiums that can be paid within the cumulative seven-pay limit so that the policy will not be considered a modified endowment contract. The distributions for a modified endowment contract will be taxed on an income first basis.

Surrender Charge
The policy surrender charge is the amount deducted from the accumulated cash value upon full surrender of the policy. The surrender charge varies with each company but is usually at least 10 years from the initial policy date.

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Transfers
A reallocation of cash values from either the fixed account to the indexed account or from the indexed account to the fixed account. Transfers between fixed and indexed accounts may be automatic or by written request and are subject to policy limitations set forth by the insurance company.

Transfer Date
The date of a transfer between the fixed account and the indexed account may occur. A transfer can only occur on a transfer date. Transfer dates will occur not less frequently than once per calendar quarter.

 

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