We have confirmed today that Old Mutual Life (F & G Life), one of the largest writers of equity indexed UL policies, will soon reduce the cap rate on their MasterChoice equity indexed life insurance product from 17% to 15%. The 2% total reduction represents a net 12% decrease of the upside potential for policyholders and will have a negative impact on their projected index credits.
In other words, many individuals that purchased the MasterChoice policy only a few years ago under the assumptions of a 17% cap rate and 9% + indexed credits will now only be eligible for up to 15% of the growth of the underlying index.
Even with this recent reduction, the MasterChoice product will still have the highest cap rate available in the marketplace today, but with a cost. Maintaining a high cap rate is not rocket science. It simply boils down to economics. The cap rate percentages are a function of the cost of the call options that support the cap rate. The higher the cap, the more expensive the options required lock-in that rate. Any company can achieve a high cap rate but the increased costs of the options have to be accounted for which means higher expenses for the customer or reduced revenue for the insurer
or, of course, a lower cap rate.
Bottom line: Make sure you understand how the EIUL product works before making your final decision. For further insight on reviewing EIUl policies see,
Selecting the Right Indexed Life Policy
To learn more about cap rates, see
"How an EIUL Policy Works".
