June 2023

About Interest Crediting

An IUL policy is not a savings account, but if you understand how a savings account
at your bank typically works, you may understand more easily how an IUL account
works. The bank credits the savings account with interest. The interest rate earned in
the account can go up and down, but the balance won’t get smaller from the interest
crediting. Bank savings accounts usually do not charge a fee. The bank makes
money by investing in money market instruments and pays a fraction of its earnings
as interest to the savings account.

Index interest accounts have a similar interest-crediting strategy, except that
crediting is done by a life insurance company, rather than a bank. Instead of tying the
account’s interest to money market instruments, the insurer ties the interest account
for the IUL policy to an index, such as the S&P 500® Index, a statistical measure of a
securities market. Note that the timing of the payment of interest depends on the
terms of the policy. Also, if any money is withdrawn or the policy is surrendered,
interest may not be credited for that time period.

Riding the Wave

Generally speaking, when the index goes up, the interest rate credited to your IUL
policy’s cash value account(s) can go up. If the index goes down, there’s simply no
interest credited. Therefore, you either receive interest payments or, in the worst
case, you do not.
Like a traditional savings account, the index interest account is not invested directly
in the stock market and cannot lose money from the interest crediting strategy. This
characteristic sometimes is referred to as “upside potential with downside
protection.” It is possible, however, for the policy to lose cash value when interest
credited is zero, because charges associated with the policy still apply.

Again, it’s key to understand that an IUL policy and the index interest accounts are
not equivalent to a savings account. Savings accounts held at a bank are backed by
the Federal Deposit Insurance Corporation and those held at a credit union are
backed by the National Credit Union Administration. IUL policies and guarantees
associated with them are backed by the claims-paying ability of the issuing insurance
company. Therefore, you may want to review IUL policies only from an insurer that
has a broad, diverse product portfolio and more than a hundred years of claims paying history.

Explore the Options

To sum it all up, an IUL insurance product may be a terrific choice if you want a
solution that offers not only potential cash value accumulation, but also a financial
legacy for your loved ones. IUL products designed for robust accumulation may be
best if you’re seeking:
• protection security for your beneficiaries,
• growth – the accumulation of tax-deferred funds,
• stability – protection against losses due to market volatility, and
• access – the potential to leverage multiple options for income