Indexed Universal Life Insurance › › resource › resmgr... · 2018-04-03 · Understanding...
Transcript of Indexed Universal Life Insurance › › resource › resmgr... · 2018-04-03 · Understanding...
For Insurance Professional Use Only. Not for Use with the Public.
Understanding Indexed Understanding Indexed Universal Life InsuranceUniversal Life Insurance
Steve GuerraField Vice President – Greater Texas RLOPacific Life Insurance Company24 Waterway Avenue, Suite 825The Woodlands, TX 77380
The Power To Help You Succeed
UnderstandingUnderstandingIndexed Universal Life InsuranceIndexed Universal Life InsuranceA General Educational Overview
September 2010MKTG‐OC‐9311 Hour CE Credit For Insurance Professional Use Only. Not for Use with the Public.
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For Insurance Professional Use Only. Not for Use with the Public.
Universal LifeUniversal Life(UL)(UL)
Variable Universal Life Variable Universal Life (VUL)(VUL)
Indexed Universal Life Indexed Universal Life (IUL)*(IUL)*
ATTRACTIVE FEATURES
Declared Interest Rate
Accumulated Value NotSubject to Market Fluctuations
Tax Benefits
POTENTIAL CONCERNS
Declining Interest Rates
Inflation
ATTRACTIVE FEATURES
Credited Interest Based in Part on the Performance of Major Index
Minimal Allocation Decisions
Guaranteed Minimum Interest
Tax Benefits
POTENTIAL CONCERNS
Must Wait Until End of Term to Receive Credits
ATTRACTIVE FEATURES
Greater Growth Potential
Investment Options
Tax Benefits
POTENTIAL CONCERNS
Accumulated Value Subject to Market Fluctuations
Many Allocation Decisions
For Insurance Professional Use Only. Not for Use with the Public.
*IUL does not directly participate in any stock or equities markets
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• 1st IUL policiesissued in 1997
• Continues to gainmomentum
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How does an insurance company offer a policy that has upside potential similar to stock market type gains without passing risk to policyowners? – Investing premiums in fixed‐interest investments
– Call options
For Insurance Professional Use Only. Not for Use with the Public.
Source: Understanding Equity-Indexed Universal Life, April 2008, Advisor Today, http://www.advisortoday.com/archives/article.cfm?articleID=775
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For Insurance Professional Use Only. Not for Use with the Public.
For Insurance Professional Use Only. Not for Use with the Public. 7 of 26*Any policy withdrawals, loans, and loan interest will reduce policy values and may reduce death benefits" on the slide.
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For Insurance Professional Use Only. Not for Use with the Public.
Reallocation fromReallocation fromIndexed Account(s)Indexed Account(s)
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For Insurance Professional Use Only. Not for Use with the Public.
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Floor / Guaranteed Minimum Interest Rate
• Ensures minimum return
• Limits market‐based losses
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For Insurance Professional Use Only. Not for Use with the Public.*According to a schedule the carrier sets*According to a schedule the carrier sets
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For Insurance Professional Use Only. Not for Use with the Public.
Credited Rate Credited Rate (applied at (applied at
Segment Maturity)Segment Maturity)
Growth CapGrowth Cap
Growth RateGrowth Ratesubject to subject to ……
FloorFloor
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IndexIndex‐‐driven driven Interest CreditingInterest Crediting
IULIULGrowth Growth PotentialPotential
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Fixed Account
For Insurance Professional Use Only. Not for Use with the Public.
IndexedIndexedAccountAccount
IndexedIndexedAccountAccount
IndexedIndexedAccountAccount
If deductions taken from Indexed Account(s):•Maturing Segments may forfeit interest•Reallocation of maturing Segments to other accounts may be restricted
Fixed Account:•Receives interest credits up to date of deduction•More liquid than Indexed Segments
Taking deductions from Fixed Account:•Maximize growth potential in Indexed Accounts
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For Insurance Professional Use Only. Not for Use with the Public.
• Policy loans*– Borrow money from
accumulated value using policy as collateral
• Withdrawals*– Taking portion of policy’s
accumulated value
* If the Fixed Account does not have sufficient funds to process a policy loan, withdrawal or other deductions, they will be taken from the Indexed Accounts, which may result in forfeiture of interest crediting and policy lockout.
For Insurance Professional Use Only. Not for Use with the Public.
• Transfers and Reallocations To Tailor Growth Strategy
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Tax-free income assumes, among other things: (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC Sections 7702(f)(7)(B), 7702A. Any policy withdrawals, loans and loan interest will reduce policy values and may reduce benefits.
Each transfer Each transfer creates a creates a SegmentSegment
Fixed Account to Fixed Account to an Indexed an Indexed AccountAccount
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19891989‐‐19981998Average Return Average Return
16.06%16.06%
19991999‐‐20092009Average ReturnAverage Return
0.22%0.22%
For Insurance Professional Use Only. Not for Use with the Public.
Source: Figures are based on actual S&P 500 returns, Bloomberg 2009. One‐year figures are based on the change in the S&P 500 beginning on 12/15 and ending 12 months later on 12/15 of the year shown.
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For Insurance Professional Use Only. Not for Use with the Public.
• 1‐Year Indexed Account – 11% Current Growth Cap– 3% Guaranteed Growth Cap– 100% Guaranteed Participation Rate– 0% minimum Guarantee Interest Rate
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Growth Rate Growth Rate ……Subject to a Growth Cap Subject to a Growth Cap
& Floor& Floor
ParticipationParticipationRateRate
Index GrowthIndex GrowthRateRate
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11% Growth Cap11% Growth Cap
Index Growth RateIndex Growth Rate‐‐40.50%40.50%
Participation RateParticipation Rate100%100%
0% Floor 0% Floor
‐‐40.50% Growth 40.50% Growth rate subject to rate subject to ……
0% credited at 0% credited at end of Segmentend of Segment’’ss
11‐‐Year Year Maturity DateMaturity Date
For Insurance Professional Use Only. Not for Use with the Public.
*In PA, the 1‐Year Indexed Account has a 11% current Cap (3% guaranteed), 1% guaranteed Floor, and 100% Participation Rate. In NY, the 1‐YearIndexed Account has a 12% current Cap (3% guaranteed), 0% guaranteed Floor, and 100% guaranteed Participation Rate.
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For Insurance Professional Use Only. Not for Use with the Public.
• Death benefit provides self‐fulfilling funding in case of death
• Protection against negative returns
• Carrier absorbs investment risks• Potential for higher crediting rates
• Ability to create a tax‐free* income stream• Potential return of premium
• Potential lifetime coverage without paying for a lifetime guarantee
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*For federal income tax purposes, life insurance death benefits generally pay income tax‐free to beneficiaries pursuant to IRC Section 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Section 101(a)(2)( i.e. the “transfer‐ for‐ value rule”); arrangements that lack an insurable interest based on state law; and an employer‐owned policy unless the policy qualifies for an exception under IRC Section 101(j).**Tax‐free income assumes, among other things: (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death; (3) withdrawals taken during the first 15 policy years do not occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC Sections 7702(f)(7)(B), 7702A. Any policy withdrawals, loans and loan interest will reduce policy values and may reduce benefits.
Source: Chris Conklin, “8 Reasons To Use Index Universal Life To Save for Retirement", April 23, 2010, http://www.producersweb.com/r/IIG/d/contentFocus/?pcID=041255ce6c36fbf49d59eec1d69d6426
Executive Compensation
•• 401(k) Mirror 401(k) Mirror PlansPlans
•• Executive Executive BonusBonus
•• Key PersonKey Person•• NonNon‐‐Qualified Qualified PlansPlans
Retirement Strategies
•• Retirement Retirement PlanningPlanning
•• Roth IRA Roth IRA AlternativeAlternative
Premium Financing
•• Accounts Accounts Receivable Receivable FinancingFinancing
•• Life Insurance Life Insurance Premium Premium FinancingFinancing
Estate Planning
•• Charitable Charitable GiftsGifts
•• Maximizing Maximizing IRA Assets to IRA Assets to HeirsHeirs
•• Wealth Wealth Transfer Transfer StrategiesStrategies
General
•• Life Insurance Life Insurance Policy ReviewPolicy Review
•• How Business How Business Owners Can Owners Can Get the Most Get the Most Out of Their Out of Their BusinessBusiness
•• Life Insurance Life Insurance NeedsNeeds
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For Insurance Professional Use Only. Not for Use with the Public.
• Fixed Account ‐ An account within the policy into which net premiums are first applied and which provides a guaranteed minimum annual crediting rate.
• Growth Cap – The maximum total interest rate for a Segment over the Segment Term, including both the Segment Guaranteed Interest Rate and the Segment Indexed Interest Rate.
• Segment Indexed Interest ‐ Credited at Segment Maturity, it is equal to the Segment Indexed Interest Rate multiplied by the average of all Segment Monthly Balances over the entire Segment Term.
• Indexed Account ‐ The account into which the policyowner would transfer some or all of the policy’s accumulated value from the Fixed Account and earns an annual crediting rate based on Segment Indexed Interest.
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For Insurance Professional Use Only. Not for Use with the Public.
For Insurance Professional Use Only. Not for Use with the Public.
• Index Growth Rate ‐ In calculating the Segment Indexed Interest, the Index Growth Rate for the Segment Term is calculated first. Depending on the Indexed Account, the rate is determined using the Index returns over a certain time period.
• Lockout Period ‐ If a deduction from an Indexed Account occurs as a result of a loan or withdrawal that is not part of a systematic distribution, then the Lockout period applies to the policy.
• Participation Rate ‐ The percentage of the Index Growth Rate that is used in calculating the Segment Indexed Interest Rate.
• Segment ‐ Each transfer into an Indexed Account creates a Segment, which earns interest based on the Segment Indexed Interest Rate applied at Segment Maturity.
• Segment Indexed Interest Rate ‐ Reflects any growth in the Index, subject to the Growth Cap, that exceeds the Cumulative Segment Guaranteed Interest Rate.
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For Insurance Professional Use Only. Not for Use with the Public.
• Segment Guaranteed Interest Rate – The minimum guaranteed interest rate compounded annually for the number of years of the Segment Term.
• Segment Maturity – The date at the end of a Segment Term on which the Indexed Interest Credit is applied and the Segment Maturity Value is either reallocated to a new Indexed Account Segment or to the Fixed Account.
• Segment Maturity Value – The sum of a Segment’s value plus the Indexed Interest Credit applied at maturity. All Segment Maturity Value is automatically reallocated back into the same Indexed Account in the form of new Segment, unless instructions from the client direct reallocation into another account.
• Segment Monthly Balance ‐ The Segment Monthly Balance is, as of the end of any Segment Month, the amount initially transferred to the Segment on the Segment Date minus all Segment Deductions, excluding any interest that may have been credited to the Segment.
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This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local tax penalties. This
material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. Pacific Life, its distributors and their
respective representatives do not provide tax, accounting or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances
from an independent tax advisor.
Pacific Life refers to Pacific Life Insurance Company, and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life
Insurance Company in all states except New York, and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state.
Each company is solely responsible for the financial obligations accruing under the products it issues, and its product and rider guarantees are backed by
that company’s financial strength and claims‐paying ability.
Some selling entities, which may include bank affiliated entities, may limit availability of some optional riders based on their client’s age and other factors.
Your broker‐dealer can help you determine which optional riders are available and appropriate for your clients.
Non‐guaranteed elements are not guaranteed by definition. As such, Pacific Life reserves the right to change or modify any non‐guaranteed element. This
right to change non‐guaranteed elements is not limited to a specific time or reason.
Pacific Life’s individual life insurance products are marketed exclusively through independent third‐party insurance professionals, which may include bank
affiliated entities.
"Standard & Poor's®", "S&P®", "S&P 500®", "Standard & Poor's 500", and "500" are trademarks of Standard & Poor’s Financial Services LLC and have been
licensed for use by Pacific Life. The Product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Product.
Pacific Life Insurance CompanyNewport Beach, CA 92660
(800) 800‐7681 • www.PacificLife.com
Pacific Life & Annuity CompanyNewport Beach, CA 92660
(888) 595‐6996 • www.PacificLifeandAnnuity.com
MKTG‐OC‐931 For Insurance Professional Use Only. Not for Use with the Public.
Investment and Insurance Products: Not a Deposit – Not FDIC Insured – Not Insured by any Federal Government Agency –No Bank Guarantee – May Lose Value
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