US Index Policy IUL Explained and Frequently Asked Questions Answering Column

Introduction:When I first applied for insurance, when I receivedCash accumulation is the goalOfIUL Index InsuranceIn the annual financial report of the insurance policy, some consumers may ask such questions. What are the costs and expenses of the insurance policy?Where did all the expenses go?Why is the money paid in and the amount accumulated in cash value different?Will it be deducted more?

This article is made byHeatherThe column articles provided help the American Life Insurance Guide Network©️ to answer these questions, and conduct knowledge popularization, explaining about IULIndex insuranceWhat are the costs and expenses? How are consumer premiums deducted, and why the best strategy for this type of IUL policy contract is to hold it for a long time.

The cost description text of the U.S. index insurance policy IUL

First of all, I have repeatedly emphasized,IULAn index life insurance policy is, first of all, an insurance product, not an investment product.All functions launched by insurance companies are designed around the core of "protection".

In IUL index insurance, the insurance company will deduct several different expenses from the cash value part of the policy.We can divide these costs into two parts:

Fixed fee
Changing costs

Among them, in the IUL index insurance policy charges, the specific items of fixed costs and variable costs are as follows (including but not limited to, depending on the specific products of the insurance company):

Fixed cost (Fixed)	Variable cost (Variable)
Premium Load Charge (Premium Load Charge)	Cost of Insurance
Monthly fee Expense Charge)	Rider Charge
Policy Charge

IUL fee description: the charge when the premium is deposited (Premium Load Charge)

When consumers pay for each premium, a fee will be deducted according to the amount of premium deposited. This fixed fee is calledPremium loading charge, Called in Chinese:Charges when premiums are deposited.

Most of the fees for IUL index insurance are to pay taxes and fees related to insurance premiums in the federal and various states.For the sake of understanding, let's compare this part of the charge to consumption tax: Consumers purchase an insurance service and pay for this service continuously, so they need to pay this type of "consumption tax."

In the 2020 American Life Insurance Guide Network©️ Evaluation of manyIUL Insurance CompanyAccording to publicly available consumer data,The average Premium Load Charge of IUL index insurance products is in the range of 7.0%-10%.

IUL fee description: Monthly Expense Charge

The second item of the US insurance policy IUL fee description is in the fixed feeMonthly fee(Monthly Expense Charge).

The insurance company charges a proportional fee for each $1,000 unit of the death benefit amount (insured amount), usually for a cost evaluation period that lasts about 10 years. The specific ratio and period vary depending on each insurance company and specific product.After the insurance company's policy is effective, the monthly fee starts to be charged, and it is usually front-loaded.

The fee for IUL index insurance is to pay the operating costs listed by the insurance company.These costs are used to pay for services including but not limited to the following:

Insurance company's medical expenses
Cost of obtaining medical records
The cost of creating and activating a policy contract
Pay the daily operating expenses of personnel in each link
Fees to pay commissions
other…

IUL fee description: Policy Charge

The third fixed fee of the IUL policy is usually calledPolicy Charge,Chinese calledPolicy cost.It is usually charged annually or monthly, and the charging period usually lasts for the duration of the policy contract.

In the American Life Insurance Guide Network ©️EvaluationIn several insurance companies, the actual amount of this fee fluctuates between $5-$10 per month.

IUL fee description: Cost of Insurance

One of the core floating fee items of the IUL policy is calledCost of Insurance (COI), Called in ChineseInsurance cost charges.This fee is dynamically adjusted according to the risk rating of the insured, the size of the insurance coverage, the current age, and the life table mortality rate.

Like the Monthly Expense Charge, the insurance company charges a corresponding proportion of insurance costs for each $1,000 unit in the death compensation amount (insured amount) according to the individual circumstances of different consumers.This fee theoretically increases with the age of consumers, and is usually deducted from the cash value of the policy on a monthly or annual basis.

Let me give you an example: an IUL policy with an insured amount of $500,000, a male, who is insured at the age of 30, is rated as the best level, and the monthly cost of a pure COI at the age of 30 is about $40.

Regarding this charge, the most important thing to understand is that it is related to the "Net Amount of Risk" undertaken by the insurance company, that is, the difference between the insured amount and the internal cash value.As the cash value in the policy increases, the "net risk" assumed by the insurance company will decrease.

IUL fee description: Rider Charge

Another charge item of the IUl insurance policy isRider Charge, Called in ChineseAdditional terms and charges.

In order for the IUL policy to achieve different financial goals, different types ofRider, And some Riders need to pay extra.For example, an IUL index type insurance to achieve the goal of long-term care needs to be matched with a long-term care type Rider, and may pay for it.

Different Rider charges, the specific amount depends on the type of Rider and the policies of different insurance companies.Usually Rider's expenses are deducted from the cash value of the policy, in units of months or years.

The cost of IUL insurance VS the cost of VUL insurance

Although there are many different IUL index insurance products on the market to choose from, their cost and charges are mainly the ones described in this article.In the consumer's IUL insurance policy document, the charging items will also be listed one by one, so as to be open and transparent.At the same time, I made a comparison below, using IULIndex insuranceProducts andNationalwideUnderVUL investment insuranceCompare the charging items of the products.As can be seen from the table below,IUL Index InsuranceCompared with the cost of VUL investment insurance, the fee items of the company have been reduced a lot.

IUL Index Insurance Expenses	VUL Investment Insurance Expenses
Premium Load Charge (Premium Load Charge)	Premium Charge when depositing the premium
Monthly fee (Expense Charge,per $1000)	Expense Charge (Expense Charge,per $1000)
Policy Charge	Policy maintenance fee (Administrative Charge)
Cost of Insurance	Cost of Insurance
Rider Charge	Rider Charge
	Mortality and expense risk charge)
	Fund management Fees）
	Transaction Fees

IUL insurance cost summary and experience sharing

The cost of an IUL index life insurance contract usually accumulates in the early stage (the first ten years).But with the passage of time, the cash value is constantly accumulating, and the difference between the cash value and the insured amount is constantly shrinking.This difference is called "Net Amount of Risk", which is called "Net Amount of Risk" in ChineseNet risk , This is the risk that insurance companies take, and they are also decreasing. Therefore, the corresponding risk transfer costs paid by policyholders are also decreasing.As long as the cash value in the policy continues to grow and the income can cover the various costs of the policy, the policy should continue to accumulate cash value and be executed.

The distance between the top Death Benefit line and the actual cash value is constantly decreasing

This is why it is said that if it isCash value accumulationFor the goal of insurance planning, it is necessary to understand that this is a long-term financial strategy.The logic of the design of this financial plan is that in the early stage of consumer insurance, it is when consumers are least eager to spend the money, so a large amount of expenses are concentrated in this stage.When 20 years have passed, when consumers may need this money most, the policy charges at this time will be relatively reduced due to the reduction of the net risk.

Again, IUL is not an investment product, but a lifetime life insurance contract.The important thing is,IUL's cash value growth can avoid capital gains tax and other expenses, and it can also be withdrawn in a tax-free manner. This is the biggest advantage of this type of product.At the same time, IUL provides a protection function for the insured’s funds in a volatile market environment (IUL Insurance Operation Principle Column).The above features, with correct and reasonable planning and design, make the IUL insurance policy a perfect tool to provide stable income after retirement.

Finally, the American Life Insurance Guide website reminds that after purchasing a life insurance product with a cash value function, consumers will receive an annual policy financial report from the insurance company every year.Please contact yourBroker or financial adviserConduct a policy review to fully understand the financial health of the policy. (End of full text)

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