What is IUL Floor Rate?
IUL Floor Rate refers to the minimum interest rate that an Indexed Universal Life (IUL) insurance policy guarantees on the cash value, even if the associated market index performs poorly. This feature ensures that the cash value in the policy will not decrease due to negative market performance, providing a safety net for policyholders who want growth potential with downside protection.
For instance, if an IUL policy has a floor rate of 0%, it means that even if the underlying market index (like the S&P 500) experiences a loss, the cash value in the policy will not earn interest that year but also will not suffer any losses. Some policies may have a floor rate higher than 0%, such as 1% or 2%, ensuring a minimum gain each year regardless of market downturns.
The IUL Floor Rate is a critical aspect for those who want to balance the opportunity for index-linked growth while minimizing risks. This protective feature allows policyholders to enjoy potential gains without fearing the negative impact of a market downturn, making IUL policies a popular choice for those looking for both life insurance coverage and a chance for cash value accumulation.
This feature makes IUL particularly attractive for conservative investors or individuals planning for long-term financial security, as the floor rate helps safeguard the policy’s value over time.