Indexed life

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Indexed universal life is a type of permanent life insurance product.

Life insurance products guard against the financial loss caused by the death of the insured.

There are three primary types of universal life insurance: fixed, indexed, and variable.

  1. Fixed universal life insurance is regulated by state insurance departments and sold through insurance agents, banks, or registered representatives. These products provide a downside guarantee of 1% - 2%, and a company-declared current interest rate (around 5.00% as of 3/19/09). Fixed universal life policies are a very conservative interest-sensitive life insurance product.
  1. Indexed universal life is a type of fixed universal life insurance product, which is regulated and distributed in the same manner as fixed universal life. By contrast, indexed life usually provides a downside guarantee of 1% or less, but earns potentially higher upside interest crediting, based on the performance of an outside stock index (such as the Standard and Poors 500, a.k.a. S&P 500). Indexed life products have a floor of zero, so a consumer's money is always protected from downturns in the market. However, indexed life also has upside interest crediting potential of 13% or more (although still limited). Indexed life insurance is a moderately conservative interest-sensitive life insurance product.
  1. Variable universal life is a securities product, and thereby regulated by the Securities and Exchange Commission (SEC). Variable universal life usually only provide a guarantee on the fixed bucket, or by a rider which can be added to the policy in exchange for an annual fee. Interest crediting on a variable annuity is based on the consumer's choice of stocks, bonds, or mutual funds offered within the life insurance contract; it is unlimited. Alternatively, the variable universal life policyholder's money is at risk in the event of a market downturn. Variable universal life is a risky interest-sensitive life insurance product.

Indexed life was first offered by Transamerica in 1997. Sales of these products were less than a half million that year, and have since surged to $539 million in 2008. There are 34 different insurance companies offering indexed life insurance today.