Understand Investment Options of Universal Life Insurance – Industry Insurance

As we mentioned in previous articles, UL plans are unbundled, the various components of the plan such as insurance charges and earned interest can each be isolated and quantified. Consequently, they are much easier to understand and explain than traditional bundle permanent life insurance products. In this article, we will discuss the investment options of the universal life policy. In fact, in order to compete with the mutual fund industry, insurance companies offering UL are increasing the number of their investment options to reflect the various investment types found outside of insurance policies. Here are the two main types of investment options offered within most UL insurance policy.1. Guaranteed Investment AccountsThese type of accounts are available from daily interest accounts to 10 or 20 year guaranteed interest accounts. They appeal to risk-averse clients who would like to see a steady guaranteed growth within their UL plans without being worried of the fluctuation of the stock market. They are much less risky than Indexed Accounts but they also offer less potential return.The guarantee may be that the return within the UL will be no less thana) 80% of the return of the 5-Year government bond
b) Equal the 5-Year government bond less two percent
c) 90% of the return of the 5-Year government bond less one percentIn fact, most UL contract may guarantee that the GIA return will never be lower than a certain amount, say 2%.2. Indexed Accounts.The performance of these funds is usually linked to the performance of an outside index or mutual fund. They offer the policyholder the opportunity to participate in more aggressive and riskier investment types. Performance can be linked toa) The S&P 500 and other stock market index
b) European, Asian and Australian Index accounts or international index accounts that are tied to the performance of some types of world index.
c) Some indexed accounts use the return of some particular mutual funds as the outside index.The ways in which the return for indexed accounts is linked to the outside index counterparts also vary:a) The contract may state that the return will be equal to the return of the outside index, less a percentage per year. For example, the return for a S&P 500 index account may be equal to the return of the outside index, less a certain percentage.
b) The contract may specify that the return will never be less than the return of an outside index, less a management fee. For example, an American Index account that guarantees its gain will be no less than the return of the S&P 500 less 2%.