What is Annual Reset?
The Annual Reset is a feature commonly found in indexed universal life (IUL) insurance policies. This mechanism allows the cash value within the policy to be adjusted each year according to the performance of a specified financial index, such as the S&P 500. By resetting annually, the policy captures the index’s gains over the year, while minimizing losses in the event of a market downturn.
With the Annual Reset, the starting point for calculating the next year’s interest is “reset” based on the current year’s ending value. If the index rises, the cash value benefits from that increase, up to a cap defined by the policy. Conversely, if the index decreases, the annual reset prevents losses beyond the prior year’s ending balance, protecting the cash value from negative performance.
This feature can be advantageous to policyholders because it provides a conservative yet growth-oriented approach to building cash value within their IUL. The annual reset is particularly appealing in fluctuating markets, as it allows policyholders to benefit from market upswings without losing prior gains during downswings, effectively creating a “floor” that preserves accumulated interest.
In summary, the Annual Reset in an indexed universal life insurance policy is a strategic tool for managing cash value growth, allowing policyholders to safely benefit from potential market gains with a built-in safeguard against market losses.
