Picking the right life insurance plan can be tricky. There’s a wealth of options from term life insurance to whole life insurance. A recent addition to this list is indexed universal life (IUL) insurance which has an investment component that is linked to the performance of stock market indices in addition to providing a protection coverage. There are a few other features that make an IUL standout so let’s dive into a more detailed overview where I break down all that insurance jargon.

What is Indexed Universal Life insurance and how does it work?

An IUL is a type of life insurance with a protection component (typically death and Terminal Illness) and an investment component that is further split into investments in a Fixed Account, an Index Account, or a combination of both. The cash value in your IUL policy grows by earning interest from these 2 main accounts:

(a) Fixed Account – earns an interest at or above a minimum guaranteed crediting rate.  

(b) Index Account – earns an interest based on the performance of the underlying stock market indices like the S&P 500 Index, Hang Seng Index, etc., subject to a floor rate and a cap rate.

The Fixed Account offers steady growth in the policy’s cash value while the Index Account offers potential for growth linked to the performance of the stock market indices, subject to a cap. However, do note that an IUL plan includes monthly charges that are deducted from the policy regardless of the performance of these accounts. There may also be other charges imposed if you need to make a partial withdrawal or choose to surrender the policy.

What is an Index Account?

An Index Account is one of the key accounts of an IUL plan and it is slightly more complicated than the Fixed Account as the crediting rates for this account are tied to two factors:

1. The performance of your selected underlying index or indices, and 
2. The floor and cap rates set by your insurer.

Typically for the Index Account, insurers create a "tranche" or "segment" every month to pool all policies monies. Each "segment" usually spans a year and the returns of a particular “segment” are based on the price difference of the underlying index at the start and end of the 1-year period (“point-to-point”), subject to the cap and floor rates. Any positive returns subject to the cap rate will result in interest added to your policy cash value while any negative return will be protected by the floor rate.

The floor rate represents the minimum rate that can be credited and is typically assured for the duration of the policy. It is commonly set at 0% p.a., ensuring that the money in your Index Account is protected from negative market return even in the event of a market downturn.

The cap rate denotes the maximum rate that can be credited based on the performance of the underlying index. In instances where the index performance surpasses the cap rate, your credited interest will be limited to the cap rate. For example, if the cap rate is set at 10% p.a. and the index experiences a rise of 12% p.a. in return, your earned interest will still be capped at 10% p.a. Do note that cap rates are non-guaranteed and can also change frequently by the insurer.

For a more balanced portfolio, most insurers allow you to decide on the percentage you place into both Fixed Account and Index Account.

Ok, those are the basics but let’s see how an IUL plan differs from a participating whole life insurance plan.

A participating Whole Life insurance plan is pretty straightforward. You pay fixed premiums that typically don’t increase with age and your policy will have a guaranteed cash value that will build up over time. On the other hand, an IUL plan provides you with more flexibility in premium payments and growth potential linked to the index performance but there is still a certain level of risk exposure since the underlying indices may not perform as expected.

Capped returns on the Index Account of an IUL plan may limit you from reaping the full success of the market but the good thing is there is a 0% floor rate that protects your investment in the event of market downturn. You’ll also have to keep an eye on the policy fees and charges as some of the charges may increase over time, eating into the cash value of your policy.

Is an IUL right for me?

If you value a high level of control, an IUL provides you the flexibility to tailor your investment strategy. You can choose to allocate the premiums between the Fixed Account and the Index Account based on your financial goals and preference. You can also change the premium allocation or rebalance the values between the Fixed Account and Index Account to match your risk appetite if it ever changes.

IULs are typically used by high-net-worth individuals for wealth accumulation and to create a legacy for their dependents. But doesn’t everyone want to leave something for their loved ones even after they’re gone…  

Introducing Singlife Legacy IUL

While other IUL plans in Singapore typically require a minimum sum assured of US$500,000, Singlife Legacy IUL provides coverage from a minimum of US$250,000 to make legacy planning more accessible to all Singaporeans.

With our Fixed Account, you’ll start with a guaranteed lock-in crediting rate¹ in the first Policy Year, followed by a declared crediting rate that will always be at least 2% p.a. thereafter, offering you peace of mind and steady growth.

With our Index Account, you can enjoy potentially higher returns based on the performance of the S&P 500 Index and Nasdaq-100 Index, subject to a cap rate. With a guaranteed floor rate of 0% p.a. on the Index Account, you can stay confident knowing that your investments will not suffer from a negative market return even during market downturns.

Find out more about how Singlife Legacy IUL can help you craft a legacy on your terms here.

New sign-ups will also get a chance to unlock Platinum membership status* with Pan Pacific Hotel Group (PPHG) that provides you with exclusive members-only offers on room bookings, dining and more.

Note:

¹ _{The Lock-in Guaranteed Crediting Rate is applicable to the Fixed Account in the 1st Policy Year and it is equal to the current crediting rate for the Fixed Account. Please refer to the Policy Illustration and Product Summary for more details.}

_{*Only new sign-ups who meet the premium thresholds required will be eligible for the complimentary Platinum membership status with Pan Pacific Hotel Group.}

^{This policy is underwritten by Singapore Life Ltd.}

^{This is published for general information only and does not have regard to the specific investment objectives, financial situation and particular needs of any specific person. You may get a copy of the Product Summary from Singapore Life Ltd and the participating distributors’ offices. You should read the Product Summary before deciding whether to purchase the product. You may wish to seek advice from a financial adviser representative before making a commitment to purchase the product. If you choose not to seek advice from a financial adviser representative, you should consider whether the product in question is suitable for you.}

^{As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid. This is not a contract of insurance. Full details of the standard terms and conditions of this policy can be found in the relevant policy contract. This advertisement has not been reviewed by the Monetary Authority of Singapore. Protected up to specified limits by SDIC. or www.sdic.org.sg).}