By Cyril Tuohy
American International Group (AIG) has announced the launch of an index universal life (IUL) insurance product the company said is designed to provide more opportunity for growth.
The policy, marketed as Elite Index II, also offers an optional chronic illness benefit rider, the company also said.
“We’ve designed Elite Index II to be not only a smart choice for our distribution partners to sell, but also a smart solution for many consumers to buy, as it offers upside potential and downside protection,” said James A. Mallon, president, life insurance, with AIG Global Consumer Insurance.
The new IUL policy, issued by American General Life and sold through advisors, offers a death benefit and a no-lapse guarantee for 20 years or until age 80, whichever comes first, AIG said.
IUL policies credit interest based on the movement of a major stock market index like the Standard & Poor's 500 index. The interest is subject to an annual cap.
Elite Index II pays a minimum annual guaranteed interest rate of 0.25 percent regardless of index performance, AIG said.
Higher credited interest values can be used to supplement retirement income, for example, and Mallon said the policy is “life insurance you don’t have to die to use.”
With the stock market showing few signs of losing steam after nearly five years, some carriers have introduced index-based UL products in hopes of making insurance policies more attractive and boosting sales in an era of low interest rates.
Tying the interest portion of a UL policy to market performance is a way to give investors reasons to buy a UL policy.
Earlier this year, Genworth launched Foundation Builder Index UL, its second index universal life product.
Elite Index II’s illness rider gives contract holders access to death benefits to help pay for chronic illness for policyholders who meet certain criteria. Policyholders can take a loan against the value in the account.
IUL products offer policyholders more flexibility with regard to premium payments and the use of policy value to pay for current needs.
Drawbacks include the caps on how much interested is credited to the policy. If the Standard & Poor's 500 index soars nearly 30 percent, as it did last year, an IUL policy capped at 6 percent would prevent the policyholder from taking advantage of those gains.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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