The concept is the same as above. Variable Life is a “bucket.” Everything works the same, with a significant exception. In a Variable contract, you have more control and substantially more risk. You get to invest your “bucket’s” money in mutual funds that you pick, and your investment decisions dictate the returns (profits or losses). With the standard Universal Life example above, the company is doing the driving (investing and paying you interest). With Variable life, you drive (and hope you don’t crash). VARIABLE LIFE IS FOR A SAVVY INVESTOR WHO IS WILLING TO TAKE SUBSTANTIAL RISK. I think the variable life purchaser is more in tune with the product’s inherent flaws and is willing to gamble more for better results. The big problem with the bucket in a Variable policy is that the values bounce everywhere. One year, there could be great returns; in the subsequent years, losses. So, additional deposits in a bad year may be dictated.

Another concern with variable contracts is the admin fees, management, and ancillary charges. They can get quite steep and can put a sizable dent in the bucket, as they are another drip. Of course, the buyer of this product usually feels they can beat the market consistently and offset the higher charges not found in Universal Life.

The Newest Darling of the Insurance Industry!

Indexed Universal Life insurance provides a death benefit plus the opportunity to accumulate greater policy value (your bucket) that can generate tax-free supplemental income. Many policyholders pick the crediting strategy that links growth in policy values to the performance of the S&P 500 Index. A fixed account crediting strategy is usually also available.

I have already gone over my time explaining how these contracts work, but the key ingredient with Indexed Universal Life is the illustration given to you at the application. In most illustrations, the projected values (or hoped-for values) are on the far right. The guaranteed values are on the left. If those “projected” crediting percentages are high on the right, that should be a warning sign, as the illustration says, “you will get this interest rate every year on average.” Those high projections make your bucket bigger.

There was a famous quote by the great Spanish philosopher George Santayana (1863-1952), who said in The Life of Reason: “Those who cannot remember the past are condemned to repeat it.” I believe the life insurance industry is repeating history. After 2010, the buzz in the insurance business turned to Indexed Universal Life. It has the same ingredients as standard Universal Life with one crucial twist. Your bucket’s investment return tracks the stock market and, as I said above, mainly the S&P 500 stock index. Whatever the index returns in a given period, you get some of the profit added to your bucket (less company expenses as outlined above). Most companies say that if the index returns a loss in any given crediting period, you will not lose money for that period. Sounds good so far. Your bucket gets a percentage of the index’s gain in good return periods.

The companies are “projecting” their returns on the bucket based on historical returns of the S&P 500 (over the last 25 years), with the guarantee that in any given crediting period, the contract will never lose money. So the “floor return” is zero. What’s the ceiling return?

This is where it gets a little tricky. The companies put a “cap” on how much you can make in a crediting period. It may be 10% or 12% – each contract is different. So if the index goes up 20% in a crediting period, you are capped at whatever your contract dictates (less expenses). The company gets the rest. You make money, they make money, what’s the problem?

If you hit low or zero interest returns early in the policy’s life, you have to make up the lost interest (remember they are projecting X% average return each year) either with significant investment returns or by you putting more cash into the policy. If your returns are ok, but less than, projected, you still face the same problem. Remember, the salesperson will show you the best possible outcome, and that this is an illustration, not a guarantee. Compare it to the weather reporter who says, “It may rain, but there is no guarantee on that.” The guarantees are on the illustration's left side; be sure to look for them and understand the downside.

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From New Hampshire...I have over 40 years of experience in various underwriting positions and can truthfully say your website is the best I have ever seen for life quotes. You give the appropriate disclosures and, more importantly, the history behind the life products currently being sold.