What You Should Know About IUL Bonus Multipliers and AG-49

credit: AIG

Over the last few months there has been increased scrutiny concerning the Index Universal Life Insurance (IUL) bonus multipliers carriers have introduced to enhance the illustrated performance of their indexed product portfolios. 

IUL is a popular product that can have many nuances. Designs and features are continually evolving. That's why it's essential for the advisor and consumer to review all components of an IUL product before deciding if it's right for their particular situation. 

What is an IUL Bonus Multiplier? IUL Bonus Multipliers are a method of modifying the caps, par rates and interest credits that determine the illustrated interest rate without increasing the stated interest rate.

Unless you really know what you’re looking for, you may not realize that the illustrated interest rate is being “enhanced” in the background. It creates a way to “enhance” illustrated results while stating a “more conservative” illustrated rate. These IUL Bonus Multipliers technically follow the letter of AG-49, but do they really follow the spirit of AG-49?

In 2018 the NAIC formally instructed the IUL Illustrations subcommittee to provide recommendations to modify AG-49. This recommendation comes as the popularity of IUL bonus multipliers soars. And remember, these IUL bonus multipliers are currently excluded from the AG-49 calculation used to derive maximum illustrated rates.

IUL multipliers break the connection between AG-49 maximum illustrated rates and effective rates on an illustration. A 6% AG-49 rate on a multiplier product can generate effective rates from 6.6% to 9%, depending on design & pricing. AG-49 maximum rates have reduced illustrated rates, yet illustrated income continues to climb. Most IUL bonus multipliers have a charge associated with them which are assessed every policy year against the accumulation value allocated to the index accounts with IUL multipliers. And the charge has the potential to lower policy values.

The IUL bonus multiplier percentage may be non-guaranteed. Even when they’re guaranteed, they only guarantee is the formula, not the actual returns, which are still subject to market performance. The IUL multiplier is earned on positive index interest returns only. There is NO bonus multiplier credit when the index return is 0 percent or negative.

IUL bonus multipliers increase values on an illustration, since many carriers believe they may be excluded from the maximum illustration rates dictated by AG-49.

THE BOTTOM LINE: You cant believe everything you see! Get the AIG Multiplier White Paper