Use this tool to see the potential impact of market volatility, and how some features of Index Universal Life (IUL) can help boost confidence as you look forward to your future.
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The intent of this presentation is not to focus as much on how index universal life (IUL) products actually perform when all of these policy aspects are taken into consideration. Instead, this presentation focuses extensively on indexing concepts:
This presentation was designed as an educational discussion.
What's next?
IUL products
Taming volatility
The effects of volatility
Introduction
Get ready for retirement
Riding the ups and downs
Positive mindset
The benefits get even better
The comparisons made in this presentation are for conversation purposes, and specifically exclude the basic costs of life insurance policies, including monthly policy fees, premium expense loads, cost of insurance charges, and other policy costs and any taxation or tax reporting associated with any transactions.
How do caps and floors work when applied to hypothetical and actual S&P 500® returns over varying time periods? What happens as caps and floors change? How do actual volatile market scenarios compare to indexing concepts in relation to account or asset balances?
That’s because the intent of this presentation is to focus on “how indexing works” independently of these other policy elements. The more agents, advisors and consumers can understand about how indexing works, the better prepared you will be to understand how index life insurance works when the principles of indexing are applied within an IUL insurance policy. This material was developed for educational use only and is not intended to provide financial, legal, fiduciary or tax advice, nor does it represent a product recommendation. Please consult with your financial professional, attorney or qualified tax professional for advice or recommendations specific to your situation.
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About this tool
Index universal life
•
For full product details click here: QoL Max Accumulator+ II or QoL Value+ Protector II
Index universal life insurance (IUL) provides valuable life insurance death benefits, in addition to building tax-deferred cash value that can be accessed for supplemental retirement income or other financial needs — without the risks of market volatility.
Did you know ...
of American families have liquid savings of at least six months
Americans are living longer, and that means they may need more cash to support their lifestyles and have more needs for asset protection. In addition to the expenses they expect, they will have to plan for the unexpected to ensure lasting comfort and care for the long term.
Get ready for retirement.
Only 28%
https://www.federalreserve.gov/econres/notes/feds-notes/assessing-families-liquid-savings-using-the-survey-of-consumer-finances-20181119.htm
of working age individuals have retirement savings greater than one year of annual income
National Institute on Retirement Security. Retirement in America: Out of Reach for Working Americans?. September 2018.
Less than 20%
of American adults have any sort of life insurance
2019 Insurance Barometer Study, Life Happens and LIMRA
Americans live with at least one chronic disease
6 in 10
Americans have faced financial hardships this year due to medical costs
CNBC. 137 million Americans are struggling with Medical Debt. November 2019.
137.1 million
Only 57%
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Riding the ups and downs.
Invested assets can grow with the market.
But what happens when the market dives?
If you’re not actively engaged, or you misinterpret market signals, your asset value could diminish.
With an index universal life (IUL) insurance product, your cash value follows the performance of market indexes — but your principal and interest earned are protected against losses if the market falls.
Positive mindset.
And if the market falls, your principal and interest earned are safe.
Index universal life (IUL) insurance is a permanent policy — there’s no time limit (or term) on receiving your benefits. Some of the benefits can even be accessed while you are still living. You can adjust your premiums and/or death benefits to match your overall needs.
When the market grows, your cash value grows.
A market index is a hypothetical portfolio of investment holdings which represents a segment of the financial market. Investors follow market indexes to gauge market movements. The Dow Jones, S&P 500® and NASDAQ are three popular examples of stock indexes for tracking the performance of the U.S. market.
Indices are unmanaged and have no identifiable objectives. You cannot invest directly in an index.
Due to administrative costs associated with an insurance policy, reduction in cash value is a potential outcome in a down market year.
In addition to death benefit protection, an IUL policy helps you build up a tax-advantaged cash value. There’s no limit to the number of premiums you can make, and there’s no set age requirement that restricts when you can start taking cash value out of your policy.
The benefits get even better.
Take advantage of stock market returns without the risk of loss.
Premiums are limited by your contractual terms and the Internal Revenue Code.
Changes in the performance of a market — measured through the change in value of an index — are known as market volatility. Let’s look at an example of a market in action and see the potential impact of market volatility.
Ups and downs.
Ups and downs
Market scenario
Ten-year performance
The outcome
Volatility deserves your attention
How IUL can help
For argument’s sake, say you are ready to retire. You have $1M in your retirement account. For the next 10 years, you plan to withdraw $100,000 every year. Let’s take a look at how market volatility can impact the asset value.
Market scenario.
10-year period
$100,000
every year
1,000,000
10YR
900,000
$
Hypothetical example for illustrative purposes only. Does not include fees or other charges. Does not represent a specific investment.
Ten-year performance.
Account value
Year 10
Year 9
Year 8
Year 7
Year 6
Year 5
Year 4
Year 3
Year 2
Year 1
Year 0
The bad news spills over. Two years of big losses in a row leaves you with only $61,522 left.
$61,522
-$100,000
-13.04%
Year-end account value
Withdrawal
Market index performance
The market takes another fall. And it especially hurts this late in the game.
$170,748
-23.37%
Impressive market performance! But the value is still decreasing because of the losses sustained up to this point.
$322,821
26.38%
Even with a decent market performance this year, your value is still decreasing.
$355,437
8.99%
Market performance is barely in the black, and it does little to offset your annual withdrawal.
$426,119
3.00%
A strong year in the market! Unfortunately, because of that big hit in year three, you’re only earning returns on about half of what you started with.
$513,708
13.62%
The market moved back into positive territory. But that small growth was applied to a balance that shrank heavily last year. That downside volatility keeps hurting.
$522,128
3.53%
What happened? The market took a huge downward swing, and your account has lost significant value. This is the downside risk of volatility.
$633,302
-38.39%
You’re on a roll! You’ve come out ahead each year at this point.
$1,129,592
23.45%
The return you earned is greater than the amount you withdrew. It was a good year in the market.
$1,015,020
12.78%
$1,000,000
Starting account value
Click year to advance
Your entire $1M savings have almost been depleted. Because of the market volatility you have experienced, you have less than $62,000 left at the end of the 10-year period.
The outcome.
We’ve seen how market volatility can make a significant impact on your retirement finances. In times of uncertainty, choosing ways to protect against volatility can be an important part of your financial strategy. Let’s consider index universal life (IUL) for example.
Volatility deserves your attention.
Index universal life insurance products provide valuable death benefit protection and allow you to adjust your premiums and/or death benefits to match your overall needs. IUL can help enhance your comprehensive retirement approach by allowing the ability to access cash value from the policy, which can help extend your retirement years and provide a more comfortable future for you and your loved ones.
How IUL can help.
Index universal life (IUL) insurance is a permanent policy — there’s no time limit (or term) on receiving your benefits. In addition to the valuable death benefits, some of the benefits can even be accessed while you are still living. You can adjust your premiums and/or death benefits to match your overall needs.
Assumes policy is designed properly, is not a Modified Endowment Contract (MEC), and the policy remains in force while there is an outstanding loan balance.
Let’s review the basics. Index universal life (IUL) policies accumulate cash value based upon the performance of an underlying index over a specific period of time. That means they have greater potential for accumulation than a traditional universal life policy.
How it works.
3000
2500
2000
1500
1000
500
This chart shows the performance of a hypothetical index over a 10-year period. We’ll zoom in on the first two years.
Hypothetical index
Here we see a rise in Year 1, and a fall in Year 2.
The index is subject to these ups and downs in the market — what we call volatility. In an index, greater growth opportunity can mean greater volatility. In this example, we see that the index rose nearly 20% in Year 1, and then dropped 10% in Year 2.
By tracking the performance of an index, an index universal life insurance policy can allow for cash value accumulation. And because there’s no actual investment in the market, it can also protect you from market downturns, reducing volatility in the account. Let’s see how.
With an IUL insurance policy, the index interest that’s credited to your account in an up year may be limited ...
... But IUL insurance policies offer upside potential with downside protection. Zero is your hero!
1450
1400
1350
1300
1250
1200
20%
10%
Cash value
0%
Hypothetical example for illustrative purposes only. Does not include fees or other charges. Does not represent a specific investment. Past performance is not indicative of future results.
How it works
The power of indexing
Protected floors
Cap and participation rates
A huge difference
Let’s look at an example that shows how incorporating indexing can affect long-term performance. If you had a $100,000 investment that went up by 10% in one year and down 10% the next year for 10 consecutive years, what would be the result?
The power of indexing.
$110,000
$108,000
$106,000
$104,000
$102,000
$98,000
$96,000
$94,000
The net result is that even though your mathematical average rate of return is zero, you continue to lose value over time.
$95,000
restart
You see where this is going? You always lose interest on a higher balance and gain interest on a lower balance. Over time, you lose value.
And now, you’re gaining 10% of a smaller balance than last time, so you don’t earn as much as before.
But wait a second. In Year 2, the market falls 10%, but now you’re losing 10% of a higher balance ($110,000 versus $100,000). So in Year 2, you lose $11,000: more than you earned in Year 1.
Year 1 growth increases your balance. You now have 10% more than you started with.
But this is a misunderstanding. Remember that the rate of return is calculated against the account balance — and as that balance changes, it in turn impacts the end-of-year value.
Many people would think you’d simply wind up right where you started.
Hypothetical expected results
What really happens when you examine this simple scenario piece by piece?
Let’s do the math.
If the market went up 10% one year and down 10% the next year over and over, the quick answer most people give is that the gains and losses wash each other out.
Would you break even?
Click to advance
Hypothetical example for illustrative purposes only. Does not include fees or other charges. Does not represent a specific investment. Due to administrative costs associated with an insurance policy, reduction in cash value is a potential outcome in a down market year.
Hypothetical actual results
IUL tames volatility through a simple innovation: floors. A floor protects you from risk when the performance of the index falls below zero.
Protected floors.
The floor is the lowest your account rate can go. The floor of a policy is often set at 0%, which means you are not at risk to lose value based on the performance of the index.
$170,000
$160,000
$150,000
$140,000
$130,000
$120,000
Gain 10% on a higher value in up years
Indexing also eliminates the waiting time for a recovery after a down year, because you’re not starting with a lower value the way you would without the floor: your 10% gain is on an account value that hasn’t diminished. Unlike the example without floors, where your account ended up with a value of $95,000, here you end with a value of about $161,000.
The upside.
$161,000
Let’s assume a floor set at 0%, a beginning value of $100,000 and the same index performance as before: up 10% in Year 1, down 10% in Year 2 and so on. As you can see, the account gains in up years, but there’s no loss in down years.
A participation rate strategy defines the percentage (e.g., 70%) of positive years’ performance in which you’ll share. Negative years are protected by a minimum interest rate (e.g., 0%). In a cap rate strategy, you’ll share in 100% of the growth in a positive year, up to a cap (e.g., 10%). Negative years are also protected by a minimum interest rate (e.g., 0%).
Two ways to determine index interest credits.
Caps are the highest interest rate the account can earn. If the market is up higher than the cap, you’ll only get credited for the cap amount.
The participation rate is a portion of the index gains that your account value will actually receive.
Participation rate
Cap rate
Remember the scenario from “The effects of volatility”? We started with an account valued at $1M, withdrew $100,000 annually and watched what happened with our value as it was exposed to market volatility. Now let’s see the effects of caps, floors and participation rates.
Let’s compare.
$750,000
$500,000
$250,000
$0
Market performance
-38.49%
2% cap, 0% floor
10% cap, 0% floor
70% participation rate, 0% floor
10.00%
0.00%
Interest credited
2.00%
8.95%
16.42%
2.47%
9.53%
2.10%
6.29%
18.47%
$406,292
$79,981
$457,868
With a 0% floor and a 10% cap, your account balance jumps from $61,522 to $406,292! That’s a difference of nearly $345,000.
With a 0% floor and only a 2% cap, your ending balance is still higher by almost $20,000. It’s not so much about the upside as it is about the reduction or elimination of downside risk.
Eliminating the downside risk and gaining 70% of the index returns, you end up with the highest balance in these examples: $457,868.
Select your scenario
Here are the final account balances of the examples we just reviewed. The contrast is pretty striking!
As you can see, the power of indexing as shown helps to tame volatility by providing floors, while it allows for upside growth potential using caps and participation rates.
Ending balance
No cap
10% cap
2% cap
70% participation rate
No floor
0% floor
Market participation can have real financial benefits. But there are risks as well. IUL products can help you gain from market growth while protecting your cash value from market volatility — helping ensure comfort and quality of life.
A huge difference!
Index universal life (IUL) insurance products, along with their death benefit, are designed to support different objectives. And they’re suitable for different clients, based on their financial situation, life stage and other factors. AIG offers IUL products in two main categories: those focused on long-term cash value accumulation, and those focused on low-cost death benefit protection.
Accumulation or protection.
accumulation IUL
Learn more about
protection IUL
Accumulation or protection
Focus on accumulation
Focus on protection
QoL MAX ACCUMULATOR+ II
QoL VALUE+ PROTECTOR II
QoL Max Accumulator+ II IUL
Objective
Long-term cash-value accumulation
Example profile
Example needs
Product features
Built-in accelerated benefit riders provide 100% death benefit acceleration (up to $2M) for qualifying chronic, critical or terminal illness Transparent, with no “added charges” for index performance or bonus interest credits Proprietary volatility-controlled indices for an additional layer of protection during volatile market performance periods Participating loans — allows for loaned money to participate in index earnings (if any) Agile Underwriting+ available for clients 59 and younger with face amounts $2 million or less
Four index strategy options for cash value growth based on the performance of the chosen index Account value enhancement credits beginning in policy year six, regardless of index performance. No charge, built-in benefit Optional Select Income Rider: Spread death benefit out in installment payments; lowers cost of insurance, potentially increasing the policy’s cash value Unique Income for Life Rider: Provides opportunity to receive income for life if you meet the terms and conditions of the rider.
Upside index potential with maximum cash accumulation Need for supplemental retirement income or other funding needs
Less concern with death benefit (or death benefit is supplemented through parallel term life coverage)
Ages 30–55 Mass-affluent to affluent market, focusing on cash value and growth Desire to accumulate cash value
1
2
QoL Value+ Protector II IUL
Built-in accelerated benefit riders provide 100% death benefit acceleration (up to $2M) for qualifying chronic, critical or terminal illness Four index strategy options for cash value growth based on the performance of the index chosen Proprietary volatility-controlled indices for an additional layer of protection during volatile market performance periods Dial-able death benefit guarantee out to age 100 Account value enhancement credits beginning in policy year six, regardless of index performance. No charge, built-in benefit Agile Underwriting+ available for clients 59 and younger with face amounts $2 million or less
Some death benefit guarantees (to life expectancy or longer)
Ages 40‒70 Middle to affluent market, focusing on death benefit protection Desire to accumulate cash value along with death benefit guarantees
Accumulate cash value with index strategies
Optional Select Income Rider: Spread death benefit out in installment payments; lowers cost of insurance, potentially reducing required premiums Protected Premium Rider: Ideal for single pay, short pay or 1035 cases; in policy years 2–5 withdraw cash surrender value above cumulative target premium with no surrender charges
Death benefit protection
IUL can be an important part of your retirement plan. By helping to tame volatility, IUL can serve as an additional asset in your retirement plan to provide additional options — and peace of mind — in uncertain times.
Life with confidence.
We see the future in you.
SM
For more information, talk to your agent or visit:
Protection IUL Consumer Guide: QoL Value+ Protector II
Accumulation IUL Consumer Guide: QoL Max Accumulator+ II
Protection IUL Consumer Guide: QoL Value+ Protector
Accumulation IUL Consumer Guide: QoL Max Accumulator+
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Disclosures Applicable to Critical Illness, Chronic Illness, and Terminal Illness Accelerated Death Benefit Riders 1. When filing a claim for Qualifying Critical Illness under a Critical Illness Accelerated Death Benefit Rider, for Qualifying Chronic Illness under a Chronic Illness Accelerated Death Benefit Rider or for Qualifying Terminal Illness under a Terminal Illness Accelerated Death Benefit Rider, the claimant must provide to the Company a completed claim form and then-current Certification which must be received at its Administrative Center. 2. If a benefit under the Critical Illness Accelerated Death Benefit Rider is payable, the Company will provide the Owner with one (1) opportunity to elect a Critical Illness Accelerated Benefit Amount as to the occurrence of the Qualifying Critical Illness in question. To make such an election, the Owner must complete an election form and return it to AGL within the Election Period set forth in the rider (i.e., within 60 days of the owner’s receipt of the election form). The Company will not provide a later opportunity to elect a Critical Illness Accelerated Benefit Amount under a Policy as to the same occurrence of a Qualifying Critical Illness. 3. If a benefit under the Chronic Illness Accelerated Death Benefit Rider or under the Terminal Illness Accelerated Death Benefit Rider is payable, the Company will provide the Owner with an opportunity to elect a Chronic Illness Accelerated Benefit Amount as to the Qualifying Chronic Illness in question or to elect a Terminal Illness Accelerated Death Benefit Amount as to the Qualifying Terminal Illness in question, as applicable. To make an election, the Owner must complete an election form and return it to AGL within 60 days of the Owner’s receipt of the election form. 4.Under certain circumstances where an insured’s mortality (i.e., our expectation of the insured’s life expectancy) is not significantly changed by a Qualifying Critical Illness or a Qualifying Chronic Illness and, notwithstanding the Minimum Accelerated Benefit Amount provision, the accelerated benefit may be zero. 5.The failure to provide a required election form (with the requested attachments) within the Election Period provided by the applicable rider (i.e., within 60 days of the owner’s receipt of the election form) may preclude payment of a benefit. 6.Benefits payable under an accelerated death benefit rider may be taxable. Neither American General Life Insurance Company nor any agent representing it is authorized to give legal or tax advice. Please consult a qualified legal or tax advisor regarding questions concerning the information and concepts contained in this material. 7 Generally, we will send you an IRS Form 1099-LTC if you receive an accelerated death benefit on account of a Chronic Illness or a Terminal Illness. We will send you an IRS Form 1099-R if you receive an accelerated death benefit on account of a Critical Illness. The sum that will be included in Box 2 (Accelerated death benefits paid) of IRS Form 1099-LTC or in Box 1 (Gross distribution) of IRS Form 1099-R will be the actual sum you received by check or otherwise minus any refund of premium and/or loan interest included with our benefit payment plus any unpaid but due policy premium, if applicable, and/or pro rata amount of any loan balance. 8. The maximum amount of life insurance death benefits that may be accelerated as to an Insured Person under all accelerated benefit riders is the lesser of the existing amount of such death benefits or a lifetime maximum of $2,000,000. 9. See your policy for details. • An Accelerated Death Benefit Rider (ABR) is not a replacement for Long Term Care Insurance (LTCI). It is a life insurance benefit that gives you the option to accelerate some of the death benefit in the event the insured meets the criteria for a qualifying event described in the policy. The rider does not provide long-term care insurance subject to California insurance law, is not a California Partnership for Long-Term Care program policy. The policy is not a Medicare supplement. • ABRs and LTCI provide different types of benefits. An ABR allows the insured to access a portion of the life insurance policy’s death benefit while living. ABR payments are unrestricted and may be used for any purpose. LTCI provides reimbursement for necessary care received due to the inability to perform activities of daily living or cognitive impairment. LTCI coverage may include reimbursement for the cost of a nursing home, assisted living, home health care, homemaker services, adult day care, hospice services or respite care for the primary caretaker and the benefits may be conditioned on certain requirements or meeting an elimination period or limited by type of service, the number of days or a maximum dollar limit. Some ABRs and all LTCI are conditioned upon the insured not being able to perform two or more of the activities of daily living or being cognitively impaired. • This ABR pays proceeds that are intended to qualify for favorable tax treatment under section 101(g) of the Federal Internal Revenue Code. The federal, state, or local tax consequences resulting from payment of an ABR will depend on the specific facts and circumstances, and consequently advice and guidance should be obtained from a personal tax advisor prior to the receipt of any payments. ABR payments may affect eligibility for, or amounts of, Medicaid or other benefits provided by federal, state, or local government. Death benefits and policy values, such as cash values, premium payments and cost of insurance charges if applicable, will be reduced if an ABR payment is made. ABR payments may be limited by the contract or by outstanding policy loans. Policies issued by American General Life Insurance Company (AGL), Houston, TX. Policy Form Numbers: ICC16-16760, 16760, 15442, ICC15-15442; Rider Form Numbers: 15600, ICC15-15600, 13600-5, ICC18-18012, 18012, ICC16-16420, 16420, 15972, ICC13-13601, 13601, 07620, ICC14-14002, 14002, ICC15-15992, 15992, 15997, ICC18-18004, 18004, ICC15-15990, 15990. Issuing company AGL is responsible for financial obligations of insurance products and is a member of American International Group, Inc. (AIG). Guarantees are backed by the claims-paying ability of the issuing insurance company. AGL does not solicit business in the state of New York. Products may not be available in all states and product features may vary by state. Please refer to your policy. AGLC200550-QoL REV0122 © AIG 2022. All rights reserved.
