With the help of your financial advisor, you designed an IUL policy for the tax-free retirement income and death benefit protection for your family, but how do you know if your policy is functioning properly? In this episode of Money Script Monday, Morgan discusses 3 key areas to focus on to determine if your IUL policy is on track to help you achieve your retirement goals.

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Video transcription

Hello and welcome to another Money Script Monday episode. My name is Morgan Guest and I'm going to be your host today.

We're going to be talking about the three most important numbers on your indexed universal life annual statement.

First, being that this is my first Money Script Monday I wanted to just talk a little bit about myself.

I've been working in the insurance industry for about five years now as a data analyst.

All that means is I work with data, I clean it up, I analyze it and we turn it into information and then we use that information to make better decisions.

That's what we're here to do today.

We're going to be looking at your annual statement, the data that it contains, and we're going to turn that into information to help you make better decisions about your policy.

Let's say you purchased an IUL about a year ago or you're thinking of purchasing one now.

What's going to happen is this. You're going to receive something that looks a little bit like this in the mail.

It's going to be your annual statement.

Premium Paid

The first thing I want you to do when you get this annual statement is look for the most important number on your annual statement and that's going to be your premiums paid.

It seems a little obvious, but it's the most important number on your annual statement because it's the most important thing you can do for this policy.

You need to make sure that your premiums were paid on time and in the amount that they were illustrated or else the policy is not going to function properly.

The charges are still going to apply no matter what premium amount you paid.

The policy will begin to use whatever value is in itself to pay for itself which means it'll eventually lapse; your premiums will disappear and you will no longer be covered with your policy.

That's why premiums paid is the most important number on your annual statement.

Let's look at what happens after that.

Your cost of insurance charges, your expense charges are all going to be applied to the premiums.

You purchased a product and it has to be paid for and you might see a rider charges on there if you chose to apply one to your policy.

After the charges are applied, you're going to end with a total here. We'll keep the math simple today with about $10,000 after the charges.

What happens there is it gets moved into an allocation that you chose when you purchased the policy. Now let's go back.

This number might not be abundantly clear on your annual statement. It may be located on a completely different page, but it is there.

It's important to understand because it gets moved into your allocation like we talked about.

Let's say you chose the S&P.

You have options like the S&P or blended index and we're going to keep it simple today and say you went into the S&P when you purchased your policy.

Interest Crediting Rate

That brings us to our most important number, number two which is your interest crediting rate.

This is where I want to spend a little time because it tends to be the spot that confuses clients the most because the interest crediting rate can function in one of two ways depending on which carrier you chose.

The first way it can function is this.

Your interest crediting rate will be applied on your annual statement because your annual statement will come to you on your anniversary date.

It's exactly one year from when you paid your premiums and it gets applied to the allocation after the charges were applied.

You will see that 10%. Let's say you earned 10% on that $10,000 after the S&P was allocated.

You're going to see it on your annual statement on your anniversary date.

The second and actually more common way that you'll see the interest crediting rate is this. A lot of carriers have what's called a sweep date.

It's a date that they've chosen each month where all the premiums from all the policies paid for that month are moved into their chosen allocations.

Let's make sense of this.

If this is the way your carrier functions, you're going to see on your annual statement a 0% for your interest crediting rate but that's okay.

Don't freak out, because what you're going to be looking for in the mail is an index crediting statement.

That's going to hold your true interest credit that was applied to your policy.

That's because of that sweep date we talked about. The sweep date occurs after your anniversary date.

And remember, your anniversary date is when your annual statement is generated.

When your index crediting statement is generated it's always going to be after your annual statement and it's going to hold your true index rate.

Accumulation Value

That brings us to the third most important number on your annual statement, and that is your ending accumulation value.

Now this is the third most important number on your statement for a couple of reasons.

The first reason is it tells a story.

It tells us what happened after your premiums are paid, the charges were applied and after your interest crediting rate was applied to your value.

I also want you to pay special attention to this number because your ending accumulation value, let's say on your 2019 statement, is going to match what is listed on your 2020 statement as the beginning accumulation value.

Let's look at that again.

You're going to look for your ending accumulation value on your 2019 statement because it's going to end up on your 2020 statement over here as your beginning accumulation value.

What happens then is your beginning accumulation value has premiums applied to it throughout the year.

Then the whole process starts over again.

That's why these are the three most important numbers on your index universal life annual statement.

Now there are a few other numbers you'll want to look out for on your annual statement.

Of course, like your death benefit.

That's probably one of the main reasons you purchased life insurance in the first place is that coverage for you and your family in case anything were to happen to you.

You may also see things like a list of allocations and it's going to ask you if you want to change those allocations.

Know that this is not necessary.

If you're happy where it's at, you can leave it but if you want to, make sure you do it. It's usually about 21 days after your annual statement arrives that you're allowed to change your allocation.

With that, I hope I demystified a few things on your annual statement that can be a little confusing.

These are the three most important numbers you want to be looking for and remember when I said we're going to look at these numbers to make better decisions.

That's what I want you to do today.

If you're not already, you should be meeting with your advisor once a year to go over this with your advisor.

To make sure that the policy still suits your needs and that it's still functioning properly and everything's being applied properly.

So again, I hope I helped you out today. My name is Morgan Guest and have a good day.