Estimate potential cash value growth and death benefit based on your contributions and chosen index performance.
Projected Outcomes:
Enter values and click "Calculate Projections".
Understanding Indexed Universal Life (IUL) Insurance
Indexed Universal Life (IUL) insurance is a type of permanent life insurance that offers a death benefit along with the potential for cash value growth. The cash value component is linked to a stock market index, such as the S&P 500, providing an opportunity to earn interest without direct investment in the market. This makes it an attractive option for individuals seeking both protection and growth potential.
How Indexed Universal Life Works
An IUL policy has two main components: a death benefit and a cash value account. A portion of your premium payments goes towards the cost of insurance (to maintain the death benefit), while the remainder is allocated to the cash value. The growth of this cash value is tied to the performance of a chosen market index. However, this growth is typically subject to certain limitations:
Caps: The maximum rate of return you can earn in a given period.
Participation Rates: The percentage of the index's gain that is credited to your cash value.
Floors: The minimum rate of return (often 0%), protecting your cash value from market losses.
Policy fees and charges are deducted from the cash value, which can impact overall growth.
The Math Behind the Calculator
This calculator uses a simplified, year-by-year projection to estimate the potential performance of an IUL policy. It considers your initial premium, ongoing annual contributions, and a set of customizable assumptions:
Annual Contribution Calculation: The total amount contributed in a year is the initial premium (only in year 1) plus the annual contribution amount for subsequent years.
Index Crediting: For each year, the actual index gain is determined by a hypothetical growth rate. This gain is then applied to the participation rate and capped by the annual cap rate. The crediting rate is calculated as follows:
Effective Index Gain = Hypothetical Index Growth Rate * Participation Rate
Crediting Rate = MIN(Effective Index Gain, Annual Cap Rate)
If Hypothetical Index Growth Rate is negative, the Crediting Rate is 0% (due to the floor).
Cash Value Growth: The cash value at the end of the year is calculated by:
Adding the previous year's cash value and the current year's contributions.
Applying the calculated Crediting Rate to this sum.
Subtracting the annual policy fees (calculated as a percentage of the *current* cash value before fees, a common simplification).
Formula:
Cash Value (End of Year) = (Cash Value (Start of Year) + Annual Contributions) * (1 + Crediting Rate) – (Cash Value (Start of Year) + Annual Contributions) * (Annual Policy Fees / 100) Simplified:
Cash Value (End of Year) = (Cash Value (Start of Year) + Annual Contributions) * (1 + Crediting Rate – (Annual Policy Fees / 100))
Death Benefit: The death benefit generally remains level (the base death benefit) unless cash value growth significantly exceeds insurance costs, in which case it might increase in some policy structures. For simplicity, this calculator assumes the death benefit remains the 'Base Death Benefit' amount throughout the projection. In reality, the death benefit in IUL policies can fluctuate based on cash value and internal policy charges.
Note: This is a simplified model for illustrative purposes. Actual IUL policy performance can vary significantly due to market fluctuations, policy-specific charges, and the insurer's crediting methods. It is essential to consult with a qualified financial advisor to understand the complexities and potential outcomes of any specific IUL policy.
When to Consider an IUL Policy
IUL policies can be suitable for individuals who:
Are looking for permanent life insurance coverage.
Want the potential for tax-advantaged cash value growth linked to market performance without market risk.
Have a long-term financial outlook.
Understand and are comfortable with policy fees and potential caps on growth.
Are seeking supplemental retirement income options, as policy loans or withdrawals can be taken against the cash value.
It's crucial to compare IUL policies with other financial tools, such as mutual funds, annuities, and traditional life insurance, to determine the best fit for your individual financial goals and risk tolerance.
function calculateIUL() {
// Get input values
var initialPremium = parseFloat(document.getElementById("initialPremium").value);
var annualContribution = parseFloat(document.getElementById("annualContribution").value);
var policyYears = parseInt(document.getElementById("policyYears").value);
var avgAnnualGrowthRate = parseFloat(document.getElementById("avgAnnualGrowthRate").value) / 100; // Convert percentage to decimal
var annualCapRate = parseFloat(document.getElementById("annualCapRate").value) / 100; // Convert percentage to decimal
var participationRate = parseFloat(document.getElementById("participationRate").value) / 100; // Convert percentage to decimal
var annualPolicyFeesPercent = parseFloat(document.getElementById("annualPolicyFees").value) / 100; // Convert percentage to decimal
var deathBenefitBase = parseFloat(document.getElementById("deathBenefitBase").value);
// Validate inputs
if (isNaN(initialPremium) || isNaN(annualContribution) || isNaN(policyYears) ||
isNaN(avgAnnualGrowthRate) || isNaN(annualCapRate) || isNaN(participationRate) ||
isNaN(annualPolicyFeesPercent) || isNaN(deathBenefitBase)) {
document.getElementById("result").innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (policyYears <= 0 || initialPremium < 0 || annualContribution < 0 || deathBenefitBase <= 0) {
document.getElementById("result").innerHTML = "Policy years must be positive, and premiums/death benefit must be non-negative.";
return;
}
var currentCashValue = 0;
var totalContributions = 0;
// Year-by-year calculation
for (var year = 1; year <= policyYears; year++) {
var contributionsThisYear = (year === 1) ? initialPremium : annualContribution;
totalContributions += contributionsThisYear;
// Determine the hypothetical index performance for the year
// For simplicity, we use the assumed average growth rate.
// In reality, this would involve actual index data or more complex simulations.
var hypotheticalIndexGain = avgAnnualGrowthRate;
// Calculate the potential interest crediting
var effectiveIndexGain = hypotheticalIndexGain * participationRate;
var creditedRate = Math.min(effectiveIndexGain, annualCapRate);
// Ensure floor of 0%
if (hypotheticalIndexGain < 0) {
creditedRate = 0;
}
// Calculate cash value before fees
var cashValueBeforeFees = (currentCashValue + contributionsThisYear) * (1 + creditedRate);
// Calculate and subtract policy fees
var policyFees = cashValueBeforeFees * annualPolicyFeesPercent;
currentCashValue = cashValueBeforeFees – policyFees;
// Ensure cash value doesn't go negative due to fees
if (currentCashValue < 0) {
currentCashValue = 0;
}
}
// Format results
var formattedCashValue = currentCashValue.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedDeathBenefit = deathBenefitBase.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
var formattedTotalContributions = totalContributions.toLocaleString(undefined, { style: 'currency', currency: 'USD' });
document.getElementById("result").innerHTML =
"