I post the numbers on my own IULs every year, and the year-six update on my own policy is the one I point people to when they ask whether a well-designed IUL can work. IUL means indexed universal life, a policy whose cash value is credited based on a market index, with a floor that keeps a bad year from crediting a loss. At the end of year six, the policy I track most closely had $44,770 of cash value against $42,000 of total premium paid, which includes the year-seven premium that had just gone in.
That means it had passed break-even, the point where the cash value is more than everything you've paid in. It got there after year five, which is about when I expect a well-designed IUL to break even. And it isn't a big policy. It was funded at about $6,000 a year.
The average credit since the policy started was 7.37%, up from 6.62% a year earlier. The credit is the interest the index options added to the cash value. An index option is one of the ways the policy can track a market index, and the S&P 500 is an index of 500 large U.S. companies. A cap is the most an index option can credit in a year, no matter how much the index gains. That year I had everything in an S&P 500 option with a cap, and it hit the cap all year at 9.25%. The cap moves, too. When I bought the policy, that option's cap was 11.25%. It dropped as low as about 8.5% before coming back to 9.25%, and the carrier can change it again within the limits in the contract, which I covered in what an IUL carrier can change after you buy.
The policy was running a little ahead of the original illustration, the projection I was shown when I bought it. Part of the last premium earned less than 9.25%, though. This contract moves new premium into the index options over the course of the year through what it calls a systematic allocation, so money waiting its turn earned a lower rate in the meantime. Why new IUL premium waits before it earns an index credit explains the wait.
There's a loan on the policy, too. I borrow at 4.6%, and that year the cash value behind the loan was credited 9.25%, so the money earned more than the loan cost. That spread doesn't happen every year. In a year the index credits zero, the loan still charges 4.6%. My loan rate has been 4.6% or lower since the policy started, and a loan reduces the cash value and death benefit until it's paid back.
The costs stayed small because of the design. This carrier let me blend in supplemental term insurance at about three times the base amount, which pays no commission and keeps the target premium low. Target premium is the figure that sets the agent's commission and most of the early charges. The policy does take a 6% load, which is a charge taken off each premium before it reaches the cash value. By year six, the charges were a small share of the cash value, which is what a well-designed IUL should look like at that point. My daughters' policies were past break-even too.
None of this predicts next year. Index credits depend on the market and on the cap, the illustration is a projection, and the charges come out every month no matter what the index does.
Your annual statement shows the same numbers mine does: cash value, total premium paid, and the cap on each index option. Compare this year's against last year's before you decide on next year's premium.