What is Monthly Point-to-Point?
Monthly Point-to-Point is a method used in some Indexed Universal Life (IUL) insurance policies and annuities to calculate interest based on the performance of a stock market index. This method measures the percentage change in an index at the end of each month compared to the beginning of that month. At the end of the year, the monthly changes are summed up, and the total is used to determine the interest credited to the policy or annuity.
This approach offers a way to participate in market growth while limiting exposure to negative performance. Typically, Monthly Point-to-Point strategies have a cap on positive returns, limiting the maximum gain credited each month. Some policies also include a floor, ensuring that losses in any month do not reduce the principal or existing cash value.
For example, if an IUL policy uses a Monthly Point-to-Point strategy with a 2% monthly cap, any monthly index gain above 2% would be limited to that cap. If the index declines during a month, some policies may set a minimum of 0% to protect the policyholder from losing money due to negative performance. This method allows for potential gains while minimizing risks associated with monthly market volatility.