Equity Indexed Life Insurance is a type of universal life insurance that consists of two components: your insurance and your cash value. Just like other types of universal life insurance like variable universal insurance, equity-indexed universal life insurance is very flexible and you can customize your premium and death benefits to meet your needs.
Equity Indexed Life Insurance
But equity-indexed universal life insurance is unique in that your cash value grows at a fixed interest rate based on the performance of the specific stock index options you prefer. You may prefer DIJA, S&P 500, NASDAQ, etc. To make it more simple, let’s say you are a policyholder of equity-indexed universal life insurance who has decided to invest $10,000 (cash value) in DIJA. According to this type of insurance policy, your insurer may decide to peg your interest rate to let say 3%. Put simply, if DIJA gains at an interest rate of 6%, your insurer will assume you earned an interest rate of 3%. What if the market index you selected made a loss? Most times, your insurer will assume your interest rate is 0%. This means your cash value will not be affected.
Nonetheless, this percentage depends on the agreement between you and your insurer. The rule of thumb is to make sure that you study your equity-indexed universal life insurance policy meticulously because it is not all that straightforward. First, you need to understand how the indexes work. Second, it is pertinent that you know how the interest rate looks like. Lastly, do not forget to ask your insurer about the alternatives to this policy. And if don’t have time to scrutinize an equity-indexed universal life insurance policy, we advise you to consult us or your insurance agent to make informed decisions. For more information, click here to know more about the pros and cons of equity-indexed universal life insurance