How it works At the end of each index period, account value in the participation accounts is credited with an amount of interest called the index credit. The index credit is determined by multiplying the percentage increase during the index period by the company-declared participation rate and applying that rate to the average account value in the participation account for that index and index period.
Index Credited Amount Rate = Participation Rate x Percentage Increase in the Index
First, the percentage change in the index is calculated. For example, the index starts the index period at 1,300 and ends at 1,560. The index increased by 260 (1,560 – 1,300 = 260). The percentage increase in the index is 20%. (260/1,300 = 20%) If the percentage change in the index is negative, the 0% index floor rate is applied. This chart illustrates how the index credited amount rates are calculated. Note, if the index does not increase, then no index credit will be applied.
Interest Credited to Participation Account
A: Percentage Change in Index
D: Interest Credited = (Lesser of A or B) x C
B: Index Cap Rate
C: Participation Rate
20%
7%
100%
7%
0%
7%
100%
0%
5%
n/a
200%
10%
0%
n/a
140%
0%
-10%
7%
100%
0%
Policy loans
The cash surrender value is the account value, minus the surrender charge, minus any loan or lien balance. It may be borrowed any time except during a grace period. The maximum loan amount is the cash surrender value, minus loan interest to the next policy anniversary, minus the sum of the next three monthly deductions. A loan may be repaid in full or in part at any time before the insured’s death or surrender of the policy. If the insured dies with a loan outstanding, the amount of the policy loan and loan interest will be deducted from death proceeds. The policy will allow for either fixed interest or variable interest on the loan balance. The client must choose which interest type when they take the policy loan. The client may change interest type once per year (rolling 12-month period) from the time the loan was taken or from the last change of interest type was made. Interest is calculated in advance. It accrues daily and becomes a part of the loan balance. Interest payments are due on each policy anniversary. If interest is not paid when due, it is added to the loan balance and will bear interest at the rate charged on the loan. Changing loan types Subject to the terms of the variable loan endorsement, your client may change from a fixed loan to a variable loan or from a variable loan to a fixed loan by written notice. The loan type may not be changed during the 12-month period following the date a loan is taken or the date the loan type is changed. The entire loan balance must be exchanged and will be treated as a repayment of the existing loan balance followed by a new loan of the other loan type. The amount of the new loan will be equal to the amount required to repay the existing loan balance.
For financial professional use only. Not for use with clients.
IUL-AG-0723
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