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Fleming Financial Services Blog

At Fleming Financial Services, Inc., our role is to assist our clients in defining and realizing their financial objectives and goals. We work with our clients to implement personalized plans designed for their unique situations. Our areas of concentration are: Retirement planning, Estate and Wealth Transfer strategies, and Business Continuation planning. We emphasize the importance of conducting our business with integrity and professionalism. As a member of PartnersFinancial, an independent national financial services company, we are able to provide access to sophisticated resources for the benefit of our clients. Some of the professionals with our firm are currently registered to conduct business through NFP Securities, Inc. With those additional resources in place, we help facilitate the complex corporate and personal financial decisions our clients must make.

INDEXED UNIVERSAL LIFE: Mechanics and Capabilities - Part 2

Thomas Joseph Thomas Joseph , 10/16/2014
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Celeste Moya, AVP, Product Management, NFP Life FamilyCrediting Strategies on an IUL IULs use various crediting strategies or formulas to measure the rates of return on a selected index during a set period of time. The S&P 500 without dividends is the most commonly used index to calculate the returns of IUL products; however, insurance companies offer accounts linked to other domestic and international indices, such as the Dow Jones, NASDAQ, Hang Seng, EURO STOXX 50, Russell 2000 and others. There are also insurance companies that offer accounts with combinations of indices. Index returns are generally calculated based on a point-to-point percentage gain in the index, but numerous other strategies exist. The most common calculation method is a one-year pointto-point strategy in which the insurance company measures the growth of the selected index over the course of a policy year. Each policy year’s starting point is the previous policy year’s ending point, which means that the index value is locked in at the end of the year, and the beginning value from which the movement is measured is reset. Two-year, five-year and monthly measurements are also available.  When premium is allocated to a particular index account, a “segment” is created (also frequently referred to as a “bucket”) and the duration of the strategy is referred to as the “segment term.” Funds placed in the index account cannot be redirected to another strategy until the segment matures at the end of the segment term. The credited index gain may be subject to limits referred to as the “cap rate” and “participation rate.” The cap rate is a percentage that defines the maximum amount of interest that will be credited to an IUL policy over the segment term. Current cap rates generally range from 10–13 percent for a one-year segment term. The participation rate is a percentage that defines how much of the increase in the index’s value applies to an IUL policy. Current participation rates are generally guaranteed at 100 percent, but non-guaranteed participation rates can be higher. Most IULs have a combination of these two rates, and this combination can even vary within an IUL product, depending on the strategy selected by the client. Each segment has its own cap and participation rates, which are locked in for the segment term.  Insurance companies reserve the right to reset the cap and participation rates at the beginning of a new segment but can never set them below the contractually guaranteed cap and participation rates. (See Exhibits 3, 4 and 5.). Copyright © 2013 NFP. All rights reserved.