You may have seen some pretty large industry movement in decreasing cap rates at carriers, especially in regards to Indexed Universal Life insurance (IUL). It seems like this is an industry wide issue and “carrier chatter” is really heating up across the board.
Coming out of a bankruptcy or losing a high paying job, people are often put back to square one in a financial sense. As a result, perhaps all of their saving are lost, or even worse, their retirement nest egg. Often they are digging out of a massive financial hole, and in doing so, the client needs to make very hard financial decisions.
A very basic way to understand how Indexed Universal Life (IUL) credits interest is to think of it like a very simple game where you flip a coin 10 times. There are then two ways to play the game. In Game 1 you win $100 for every head, and lose $100 for every tail. Game 2 awards you $70 for every head, but you lose nothing for every tail.
Universal Life insurance offers two death benefit options. Most producers know the difference between the death benefit options. But, few understand how structuring the policy correctly can make a significant difference to long-term cash values.
Life insurance provides valuable protection for loved ones. While the primary purpose of pure life insurance protection is to provide a death benefit, many cash-value products offer "living benefits" that you can take advantage of during your lifetime. One major living benefit of cash-value life insurance is access to the cash values in times of need, such as to help pay for a child's education or to help fund retirement.
To maximize the power of Internal Revenue Code (IRC) Section 7702 many producers wonder what is the best way to structure a life insurance policy if given the choice of using either the Cash Value Accumulation Test (CVAT) or the Guideline Premium Test (GPT). For this reason, making the proper choice -- or selecting a product with the specific test more favorable to the plan design -- is an important issue when structuring the policy. The test selected can have a significant impact on premiums, cash values and death benefits.
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