Index Universal Life Insurance Calculator
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Projected Outcomes:
—
(Based on hypothetical scenario and stated assumptions)
Understanding Index Universal Life Insurance
Index Universal Life (IUL) insurance is a type of permanent life insurance that offers a death benefit along with a cash value component. The cash value growth is linked to the performance of a chosen stock market index (like the S&P 500), but with downside protection. This means your cash value can grow when the index performs well, but it won't lose value due to market downturns (typically a 0% minimum interest crediting rate is guaranteed).
This calculator provides a simplified projection. Actual policy performance can vary significantly based on market fluctuations, policy fees, and specific insurance company crediting methods.
How the Calculation Works:
-
Credited Interest Rate: This is determined by the performance of the chosen market index, the policy's participation rate, and the index cap.
- The index's actual growth is considered.
- The participation rate determines what percentage of the index's gain is applied to your cash value (e.g., 80% participation on a 10% index gain means 8% is considered before caps and fees).
- The index cap sets the maximum interest rate credited, regardless of how high the index or participation rate might yield (e.g., a 12% cap means even if the formula above results in 15%, only 12% is credited).
- A 0% floor is typically applied, protecting your cash value from market losses.
-
Cash Value Growth: Each year, the calculated interest (after caps and floors) is added to the cash value.
-
Policy Fees: Various fees (cost of insurance, administrative fees, riders) are deducted from the cash value annually. These reduce the net growth.
-
Death Benefit: The death benefit generally remains constant or may increase based on policy design and cash value growth, depending on the specific policy's "Option A" or "Option B" structure. This calculator assumes a base death benefit that may grow slightly if cash value exceeds certain thresholds relative to the cost of insurance. For simplicity, we'll indicate if the potential cash value significantly exceeds the initial death benefit over time.
Key Terms:
- Policy Issue Age: The age of the insured when the policy is issued. Affects the cost of insurance.
- Annual Premium: The amount paid by the policyholder each year. Essential for funding the policy.
- Policy Duration: The number of years the policy is intended to be in force or analyzed for.
- Index Participation Rate: The percentage of the index's positive return that is credited to the policy's cash value.
- Index Cap: The maximum annual rate of interest that will be credited to the policy's cash value, even if the index performance and participation rate would otherwise generate a higher return.
- Hypothetical Annual Index Growth: An assumed average annual growth rate of the underlying market index used for projection.
- Annual Policy Fees: The sum of all ongoing charges for the policy, including the cost of insurance and administrative expenses.
- Initial Death Benefit: The guaranteed amount payable to beneficiaries upon the insured's death at policy inception.
Disclaimer: This calculator is for illustrative and educational purposes only. It does not provide financial or tax advice. Consult with a qualified insurance professional and financial advisor before making any decisions regarding life insurance policies. Actual results will vary.
function calculateIUL() {
var issueAge = parseFloat(document.getElementById("policyIssueAge").value);
var issueAgeType = document.getElementById("issueAgeType").value;
var annualPremium = parseFloat(document.getElementById("annualPremium").value);
var policyDurationYears = parseInt(document.getElementById("policyDurationYears").value);
var participationRatePercent = parseFloat(document.getElementById("participationRate").value);
var indexCapPercent = parseFloat(document.getElementById("indexCap").value);
var annualIndexGrowthPercent = parseFloat(document.getElementById("annualIndexGrowth").value);
var annualPolicyFees = parseFloat(document.getElementById("annualPolicyFees").value);
var initialDeathBenefit = parseFloat(document.getElementById("initialDeathBenefit").value);
var resultOutputElement = document.getElementById("result-output");
resultOutputElement.style.color = '#28a745'; // Default success green
resultOutputElement.innerHTML = '–';
// — Input Validation —
if (isNaN(issueAge) || issueAge <= 0 ||
isNaN(annualPremium) || annualPremium <= 0 ||
isNaN(policyDurationYears) || policyDurationYears <= 0 ||
isNaN(participationRatePercent) || participationRatePercent 100 ||
isNaN(indexCapPercent) || indexCapPercent < 0 ||
isNaN(annualIndexGrowthPercent) || annualIndexGrowthPercent < 0 ||
isNaN(annualPolicyFees) || annualPolicyFees < 0 ||
isNaN(initialDeathBenefit) || initialDeathBenefit <= 0) {
resultOutputElement.style.color = '#dc3545'; // Error red
resultOutputElement.innerHTML = 'Please enter valid positive numbers for all fields.';
return;
}
// — Calculations —
var currentCashValue = 0;
var currentAge = issueAge;
var cumulativeInterestCredited = 0;
var totalFeesDeducted = 0;
var participationRate = participationRatePercent / 100;
var indexCap = indexCapPercent / 100;
var annualIndexGrowth = annualIndexGrowthPercent / 100;
for (var year = 1; year <= policyDurationYears; year++) {
// Calculate potential index gain for the year
var potentialIndexGain = annualIndexGrowth;
var creditedRateBeforeCap = potentialIndexGain * participationRate;
var creditedRate = Math.min(creditedRateBeforeCap, indexCap);
// Ensure a 0% floor (no loss)
if (creditedRate < 0) {
creditedRate = 0;
}
var interestEarned = currentCashValue * creditedRate;
cumulativeInterestCredited += interestEarned;
// Add premium and subtract fees
currentCashValue += interestEarned;
currentCashValue += annualPremium;
currentCashValue -= annualPolicyFees;
totalFeesDeducted += annualPolicyFees;
// Ensure cash value doesn't go below zero due to fees
if (currentCashValue initialDeathBenefit * 1.5) { // Threshold for indication
potentialDeathBenefitIndicator = " (Potential for significant cash value growth exceeding initial death benefit)";
}
resultOutputElement.innerHTML = formattedCashValue + potentialDeathBenefitIndicator;
// Optional: Display more detailed breakdown if needed
// console.log("End of Year Cash Value:", formattedCashValue);
// console.log("Cumulative Interest Credited:", formattedCumulativeInterest);
// console.log("Total Fees Deducted:", formattedTotalFees);
}