Estimate potential cash value growth and death benefit based on your contributions and policy performance.
Estimated Results
Understanding Indexed Universal Life (IUL) Insurance
Indexed Universal Life (IUL) insurance is a type of permanent life insurance that offers both a death benefit and a cash value component. The unique feature of IUL is that its cash value growth is linked to the performance of a stock market index, such as the S&P 500, while also providing downside protection through a guaranteed minimum interest rate.
How IUL Works:
Premiums: You pay premiums to the insurance company. A portion covers the cost of insurance (death benefit), and the remainder goes into the cash value account.
Cash Value Growth: The cash value is invested in a way that tracks a chosen stock market index.
Crediting Methods:
Cap Rate: Puts a ceiling on the maximum interest credited in a given year, even if the index performs higher.
Participation Rate: Determines the percentage of the index's gain that is credited to the cash value. For example, an 80% participation rate means you get 80% of the index's positive return.
Spread: A percentage deducted from the index's gain before it's credited.
Guaranteed Minimum Interest Rate: This is a crucial feature that protects your cash value from market downturns. Even if the index performs poorly or loses value, your cash value will typically earn at least this minimum rate (e.g., 0% or 1%).
Fees and Charges: Like all permanent life insurance, IUL policies have internal charges for the cost of insurance, policy administration, and other expenses, which are deducted from the cash value.
Death Benefit: The policy pays a tax-free death benefit to your beneficiaries upon your death. The death benefit may increase as the cash value grows.
Cash Value Access: You can typically access the cash value through policy loans or withdrawals, which may have tax implications and affect the death benefit.
The Math Behind the Calculator:
This calculator provides an *estimate* and simplifies complex policy calculations. It simulates the annual growth of the cash value based on the inputs provided. Each year, the following steps are generally considered:
Index Performance: Determine the hypothetical gain of the selected market index (e.g., S&P 500). For simplicity, we use the "Projected Average Annual Growth Rate" as a proxy for yearly index performance.
Interest Crediting Calculation:
Calculate the potential interest based on the index gain, applying the participation rate and the cap rate. The actual interest credited will be the lesser of the capped gain, the participation rate applied to the gain, or the index gain itself, after considering the spread if applicable.
The formula used here simplifies this to: Min(Projected Growth Rate, Cap Rate) * Participation Rate. Note: This simplification assumes the projected growth rate is positive. If the index performance were negative, the guaranteed minimum rate would apply.
Guaranteed Minimum: If the calculated interest from the index is less than the Guaranteed Minimum Interest Rate, the guaranteed rate is applied.
Net Credited Interest: The interest earned (either from the index crediting or the guarantee) is subject to the Annual Policy Fees. The net interest is calculated as: (Credited Interest Rate - Annual Fees).
Cash Value Update: The cash value grows by the Annual Premium minus the cost of insurance (simplified in this model) and then grows by the Net Credited Interest. New Cash Value = (Previous Cash Value + Annual Premium - Fees) * (1 + Net Credited Interest Rate). Note: Fees and Cost of Insurance are often complex and vary year to year. This calculator uses a simplified annual fee percentage.
Death Benefit: The death benefit is typically the face amount plus any accumulated cash value, or a specific option chosen in the policy. For this calculator, we project a potential increase in the death benefit based on cash value growth.
Disclaimer: This calculator is for illustrative purposes only. Actual policy performance can vary significantly based on market conditions, specific policy features, and the insurance company's crediting methods. It does not account for all policy charges, taxes, or the impact of policy loans/withdrawals. Consult with a qualified financial advisor before making any insurance decisions.
function calculateIUL() {
// Get input values
var annualPremium = parseFloat(document.getElementById("annualPremium").value);
var policyDurationYears = parseInt(document.getElementById("policyDurationYears").value);
var guaranteedRate = parseFloat(document.getElementById("guaranteedRate").value) / 100; // Convert percentage to decimal
var projectedGrowthRate = parseFloat(document.getElementById("projectedGrowthRate").value) / 100; // Convert percentage to decimal
var capRate = parseFloat(document.getElementById("capRate").value) / 100; // Convert percentage to decimal
var participationRate = parseFloat(document.getElementById("participationRate").value) / 100; // Convert percentage to decimal
var annualFees = parseFloat(document.getElementById("annualFees").value) / 100; // Convert percentage to decimal
// Initialize variables
var currentCashValue = 0;
var deathBenefit = 0; // Simplified: Assuming a base death benefit, we'll show potential increase
var totalPremiumsPaid = 0;
var growthDetails = [];
// Validate inputs
if (isNaN(annualPremium) || annualPremium <= 0 ||
isNaN(policyDurationYears) || policyDurationYears <= 0 ||
isNaN(guaranteedRate) || guaranteedRate < 0 ||
isNaN(projectedGrowthRate) || projectedGrowthRate < 0 ||
isNaN(capRate) || capRate < 0 ||
isNaN(participationRate) || participationRate 1 ||
isNaN(annualFees) || annualFees < 0) {
document.getElementById("estimatedCashValue").innerHTML = "Error: Please enter valid positive numbers for all fields.";
document.getElementById("estimatedDeathBenefit").innerHTML = "";
document.getElementById("growthDetails").innerHTML = "";
return;
}
// Simulation loop
for (var year = 1; year <= policyDurationYears; year++) {
totalPremiumsPaid += annualPremium;
var indexGain = projectedGrowthRate; // Simplified: Using projected growth as the index performance proxy
var creditedInterestRate;
// Calculate credited interest based on IUL crediting strategies
var potentialInterestBasedOnIndex = indexGain * participationRate;
potentialInterestBasedOnIndex = Math.min(potentialInterestBasedOnIndex, capRate); // Apply cap
// Determine the actual interest to be credited
if (indexGain < 0) { // If index actually lost value
creditedInterestRate = guaranteedRate;
} else {
// Compare calculated index-based interest with guarantee
creditedInterestRate = Math.max(potentialInterestBasedOnIndex, guaranteedRate);
}
// Apply fees
var netCreditedInterestRate = creditedInterestRate – annualFees;
// Ensure net rate is not excessively negative due to fees
if (netCreditedInterestRate < -1.0) netCreditedInterestRate = -1.0; // Cap minimum reasonable rate reduction
// Update cash value
// Simplified: Assumes premium is added at the start of the year, then interest is applied.
// Also simplifies cost of insurance and other charges to the annual fee percentage.
var premiumPlusPreviousValue = currentCashValue + annualPremium;
var interestEarned = premiumPlusPreviousValue * netCreditedInterestRate;
currentCashValue = premiumPlusPreviousValue + interestEarned;
// Ensure cash value doesn't go below zero due to high fees/poor performance
if (currentCashValue < 0) currentCashValue = 0;
// Store details for explanation (optional, for detailed breakdown)
growthDetails.push({
year: year,
indexGain: indexGain * 100,
participation: participationRate * 100,
cap: capRate * 100,
guaranteed: guaranteedRate * 100,
fees: annualFees * 100,
creditedRate: creditedInterestRate * 100,
netRate: netCreditedInterestRate * 100,
cashValue: currentCashValue.toFixed(2)
});
}
// Finalize results
var estimatedCashValueFormatted = currentCashValue.toFixed(2);
// For simplicity, let's assume a base death benefit + cash value, or just show potential increase from CV.
// A real IUL death benefit calculation is more complex (Option A vs Option B).
// Here we'll just state the estimated cash value accumulated.
var estimatedDeathBenefitText = "Death benefit will be the policy's face amount plus potentially a portion of the cash value (varies by policy structure).";
// Generate descriptive text for growth details
var detailedExplanation = "Yearly Projections (example values):
";
var displayLimit = Math.min(growthDetails.length, 5); // Show details for first 5 years
for(var i = 0; i < displayLimit; i++) {
var detail = growthDetails[i];
detailedExplanation += "
Year " + detail.year + ": Index Gain " + (detail.indexGain).toFixed(2) + "%, Applied Rate " + detail.creditedRate.toFixed(2) + "%, Net Rate " + detail.netRate.toFixed(2) + "%, Cash Value: $" + detail.cashValue + "
";
}
if (growthDetails.length > displayLimit) {
detailedExplanation += "
… and so on for " + (growthDetails.length – displayLimit) + " more years.