Frequently Asked Questions
F.A.Q.
  1. Indexed Universal Life
  2. Indexed Annuities

 

Indexed Universal Life:
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Q: What is the biggest difference between Indexed Universal Life and variable life insurance?

A: Indexed Universal Life policy cash value is not invested in the stock market, and there is no direct link like there is with variable life products. Indexed UL uses the S&P 500 Index as a measuring stick, of sorts. The percentage of increase in the S&P 500 Index - subject to a cap rate - is added to the cash value of the policy. It's that simple.

Indexed Universal Life policies do not participate in the market losses (no negative interest to your policy). The index point from which index growth is measured is reset prior to each new measuring period - at the level where the index finished the prior measuring period. Therefore, if the index goes down, nothing is taken away - but the new measuring period will begin at the lowest index level.

With a variable life policy, the cash value is usually invested in sub-accounts that are linked directly to the market. The cash value within the variable life policy will go up and down as the market goes up and down. While there is the potential for substantial gains, there is equal opportunity for substantial losses. For example, if the market decreases 30%, it will need to go back up 43% in order to get back to its initial level.

Many clients do not want to risk their cash value to market fluctuation, so Indexed Universal Life gives them the opportunity to participate in the index growth without the risk of market declines.

Q: Indexed Universal Life has so many moving parts used to determine credited interest. What is the easiest way to explain it?

A: An Indexed Universal Life policy works much like any other universal life policy. It provides a life insurance death benefit for a reasonable cost. The main difference is in how the credited interest is determined. With a traditional Universal Life policy, the insurance company examines all of its investments to determine the individual rate of return on each one. Once these rates are determined, they are combined to provide a single rate of return for the company's investment portfolio. From the single portfolio rate of return, the insurance company determines the amount of interest that will be credited to a policy. Because the company's investment return is always changing, the company continually monitors its overall portfolio return and will change the credited interest rate when necessary.

An Indexed Universal Life policy is actually much less complicated - it's really pretty simple. The credited interest rate is based upon the movement of an index from one period of time to the next - up to the cap rate, if applicable.

Q: Indexed life insurance represents only a small portion of all life insurance sold. Why?

A: There were only a few companies selling indexed annuities when they were first introduced in the mid 1990s. However, the market has grown rapidly, and now a significant portion of annuity sales are from indexed products.

Indexed life requires more administration and support than indexed annuities. AmerUs Life Insurance Group was fortunate when it entered the indexed life market in 1998, because they (with these products in mind) had just installed a new administrative system designed to handle indexed life.

Since that time, other companies have entered the market with their own indexed life policies - as they could adapt their administrative systems to support these unique life insurance policies. Looking forward, it is likely that even more companies will make indexed life policies available as they are able to handle the administration.

Q: What does an Indexed Universal Life policy offer over a more traditional universal life policy?

A: Over time, we believe that an Indexed Universal Life policy has the potential for greater interest crediting than a more traditional policy. Consequently, this could mean more cash value, more retirement income, or lower total premiums if the policyowner wishes to discontinue premiums and use the policy cash calue to support the internal expenses (surrender charges, as specified in the policy, could apply).

Q: How is my money invested?

A: Nearly all of AmerUs Life's invested assets are in high quality corporate and government bonds. The same investment portfolio supports Indexed Universal Life products as well as the traditional products. There is no direct investment in the equity markets with Indexed UL.

Q: What if the index goes down and there is no interest credited to the policy?

A: Indexed Universal Life policies from AmerUs Life Insurance Company include at least a 2% minimum guaranteed interest rate. Here's how it works: the cash value within the Indexed UL policies is guaranteed to accumulate at 2%. When the policy is surrendered or when cash value segments mature, they are evaluated and additional interest will be credited if they have not compounded at 2% per year. This is a valuable feature of Indexed UL products that further shows how the cash value of our policyowners is protected from downturns in the index.

Q: Since it is possible to have several segments created, is it difficult to keep track of all of them?

A: Each year the policyowner will receive an anniversary statement (annual report) that will reflect all of the activity that took place within the policy during the year that just ended. It will identify all premium payments, expenses and interest earnings. The policy segments will be listed, along with their effective dates and current value. In addition, any interest earnings credited to a segment during the policy year will be shown.

Q: Is there a no-lapse guarantee available?

A: Yes, AmerUs Life's Advantage Builder Indexed Universal Life plan and their Indexed Second to Die Universal Life plans have a very competitive No-Lapse Guarantee Rider. An extended maturity option is built into the policy so that if the insured is still living at the specified age, the death benefit will be continued without additional premiums. The NLG Rider provides flexibility in that it can be removed if no longer needed and the policyholder can pay all the premiums on a limited-pay basis, such as to age 65 or for 20 years.

Q: Are there any features that are unique to the AmerUs Life Indexed Universal Life policies that may not be found in other similar policies?

A: Yes, there are two. The Life Protector Rider protects the policyowner from borrowing too much money from the policy in retirement, which may cause the policy to lapse - creating 'phantom' income. When a certain percentage of the cash value has been borrowed, borrowing activity is suspended, a one-time charge is assessed, and the policy continues at a reduced death benefit (paid-up policy).

A second feature unique to AmerUs' Indexed Universal Life policies is that the policyowner has a choice of two loan types from which to choose when borrowing from the policy. A variable loan can be particularly advantageous when credited interest on the policy is greater than the loan interest charges. The second loan type is a fixed loan. This fixed loan tends to be less expensive when index crediting is expected to be down or flat.

Q: Does AmerUs Life still pay interest on the loaned out money as though the loan never occured? And, is the loan subject to surrender charges in the first 15 years?

A: Yes, AmerUs continues to credit interest on money that is actually loaned. When the variable loan is used the borrowed money will continue to remain in the policy and will continue to be credited with the earnings generated within the policy. Therefore, it is possible to have an arbitrage on the money borrowed.

Q: What strategies are available for the policyowner to use for the accumulation of cash values within the Indexed Universal Life products?

A: There are five premium direction strategies.

Q: What is the Basic Interest Strategy?

A: Monthly policy expenses are paid from the Basic Interest Strategy and money is directed from it to the other strategies. All net premiums are initially directed to this strategy. A minimum dollar amount equal to twelve months’ rolling expenses is retained within the strategy. Whenever the value of the Basic Interest Strategy exceeds this minimum amount by $100 or more, money is directed to the other strategies based on the policyowner’s desires. Whenever a segment within the other strategies matures, its value goes back into the Basic Interest Strategy to be redirected.

Q: Can the direction for money coming out of the Basic Interest Strategy be changed?

A: Yes, the policyowner can request in writing, at any time, to have the direction percentage of dollars coming out of the Basic Interest Strategy changed for the creation of future strategy segments. Once a segment is created, however, it must remain in the strategy until it matures and returns to the Basic Interest Strategy to be redirected.

Q: What percentage of the S&P 500 Index growth is credited to the indexed strategies?

A: 100% of the index growth, up to the cap, is credited to a segment. This is the participation rate. AmerUs Life Insurance Group guarantees the participation rate on Indexed Universal Life products at 100% for the life of the policy, subject to the stipulated cap.

Q: What is a cap?

A: This is the maximum index growth percentage that can be credited to an indexed segment.

Q: What causes the cap to change?

A: Generally, the cap will be adjusted as interest rates go up or down.

Q: Is there a guaranteed interest rate for the indexed strategies?

A: Yes, each indexed strategy segment is guaranteed to accumulate at a compound annual interest rate of 2% during its existence. As an index segment matures, the Company will determine if its maturity value reflects a 2% compound interest accumulation. If it has not, additional crediting will be made to it to bring it up to the guaranteed minimum value.

Q: How were these illustrated rates determined?

A: The illustrated rate is based on the performance of the S&P 500 Index over 54 years. Illustrated rates may change periodically due to changes in cap rates or to reflect emerging equity index performance.

Q: Will there be an annual statement for the policy?

A: Yes, the policyowner will receive an annual statement each year shortly after the policy anniversary. It will reflect premiums paid, policy expenses and earnings that have been credited during the year. The individual segments will be identified, showing their effective date and the earnings credited to the segment. It is important to note that equity index earnings are only credited on the segment anniversary, and these anniversaries do not necessarily coincide with the policy anniversary. Therefore, the annual statement will only reflect segment earnings that have been credited during the policy year, since the annual statement is indicative of policy activity for each full policy year. You may want to run an inforce illustration after a policy anniversary annual statement to reflect earnings that have been credited to segments up to that time.

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Indexed Annuities:
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Q: What is an Indexed Annuity?

A: An equity indexed annuity is a special type of contract between you and an insurance company. During the accumulation period - when you make either a lump sum payment or a series of payments - the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

Q: How are they different from other fixed annuities?

A: An indexed annuity is different from other fixed annuities because of the way it credits interest to your annuity's value. Most fixed annuities only credit interest calculated at a rate set in the contract. Indexed annuities credit interest using a formula based on changes in the index to which the annuity is linked. The formula decides how the additional interest, if any, is calculated and credited. How much additional interest you get and when you get it depends on the features of your particular annuity.

Your indexed annuity, like other fixed annuities, also promises to pay a minimum interest rate. The rate that will be applied will not be less than this minimum guaranteed rate even if the index-linked interest rate is lower. The value of your annuity also will not drop below a guaranteed minimum. For example, many single premium annuity contracts guarantee the minimum value will never be less than 87.5% of the premium paid, plus at least 3% in annual interest (less any partial withdrawals). The insurance company will adjust the value of the annuity at the end of each term to reflect any index increases.

Q: What are some of the contract features?

A: Equity indexed annuities are complicated products that may contain several features that can affect your return. You should fully understand how an equity indexed annuity computes its index-linked interest rate before you buy. An insurance company may credit you with a lower return than the actual index's gain. Some common features used to compute an equity indexed annuity's interest rate include:

Another feature that can have a dramatic impact on the equity indexed annuity's return is its indexing method (or how the amount of change in the relevant index is determined). Some common indexing methods include:

Q: What is the annuity's term?

A: In general, indexed annuities (and other annuities, for that matter) require tying up your money for anywhere from five to fifteen years. Like any stock market investment, however, the shorter the term, the greater your risk that the market won't perform well over the holding period.

Q: What exactly do you earn when the market goes up?

A: Indexed annuities credit you with anywhere from 50 to 100 percent of the price gain of the market - excluding dividends. Since you're not earning dividends, you won't earn as much as you might by investing directly in the market. The percentage rate you earn (called the participation rate) may change from year to year.

Q: At the end of the term, how does the company calculate your gain?

A: There are several methods of indexing gains. Some indexed annuities use the market price on the day your annuity matures. Others look at the market price on each policy anniversary and pick the highest one. Some policies credit you with a portion of each year's market gains - if there are any. Others simply average the gains.

Q: Are there any limits to how much you can earn?

A: Sometimes, indexed annuities put a cap on how much you can earn during the year.

Q: What happens if the stock prices decline?

A: This depends on how your annuity is indexed. In general, if the stock market goes down, you do not earn as much or maybe nothing at all. However, the good news is, the main purpose of an Indexed Annuity is to protect your capital.

Q: What happens if you want to quit the annuity early?

A: Some policies will give you the guaranteed minimum return, while others will credit you with all or even part of your earnings, minus whatever surrender fee was established when you bought the policy. Getting out early may mean taking a loss.

Q: What if everything crashes?

A: Indexed annuities do carry a guaranteed minimum return, but only if you keep the policy until its maturity date. The guaranteed return is usually 3%, but that may not be 3% of what you paid into the policy in the first place. Some companies guarantee you'll get at least 3% of 90% of what you spent. Also make sure you check on how that minimum return is computed. If, for example, you get at least 3% compounded annually, that works out to a little more than a 10% gain after seven years.

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Fixed Premium Universal Life:
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Coming Soon

“S&P 500 Index®” is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by AmerUs Life Insurance Group. ALIG’s EIUL products are not sponsored, endorsed, sold or promoted by Standard & Poor’s, and they make no representation regarding the advisability of purchasing these products. The S&P 500 Index does not include dividends paid on the underlying stocks, and therefore does not reflect the total return of the underlying stocks. Past performance is no guarantee of future performance or of values of the ALIG’s EIUL products. For agent use only and informational purposes only. ALIG’s EIUL products are available in most states.

©2007 Index Marketing Group