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Jun 23, 2015 by |

Understanding Indexed Universal Life Illustrations


Indexed universal life (IUL) insurance illustrations often appear compelling, and can outperform traditional universal life (UL) illustrations. However, these illustrations can be misleading and set unrealistic expectations for consumers. It is important that consumers who are considering these policies understand these illustrations in order to make a suitable product choice.

Indexed universal life insurance is a relatively new product, and as a result, is not regulated in the same way that other life insurance illustrations are. For traditional and other fixed UL products, the illustrative crediting rate may not exceed the interest rate that an insurer is currently crediting. However, with indexed universal life insurance, illustrations usually use a crediting rate based on hypothetical historical experience rather than actual historical returns. The illustrative crediting rate is usually created by mixing historical index returns with current economic factors, such as portfolio yields and derivative prices. This results in high illustrated crediting rates.

Indexed universal life illustrations, therefore, often are based on unrealistic assumptions and create expectations for the consumer that may not be fulfilled. In fact, one study conducted by New York Life estimated that IUL policies with a 7% illustrated rate will underperform that rate 90% of the time and those with a 6% illustrated rate will underperform more than 75% of the time.

Consumers must keep in mind that these illustrations do not predict actual policy performance. Although illustrations often make it seem like indexed universal life insurance policies have lower costs and higher upside than traditional UL products, these illustrated rates are often artificially high. It is important for consumers to understand their goals and expectations prior to purchasing an indexed universal life insurance policy.

Evans Law Firm, Inc. handles insurance fraud, annuities fraud, and other consumer fraud lawsuits. If you have purchased or are considering purchasing an indexed universal life insurance policy and want to determine whether this is an appropriate investment for you, please contact Evans Law Firm, Inc. at 415-441-8669 or via email at

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