Indexed UL Topics

Indexed UL Supplemental Information

About Indexed Life
Like traditional universal life insurance, indexed universal life (IUL) offers numerous advantages, including flexible premium payments, low cost permanent life insurance, tax-deferred growth of cash values with borrowing ability, tax-free death benefits and the ability to adjust a policy to meet specific personal or business needs.

The major difference with indexed universal life is how interest is credited to the policy. Indexed life offers policyholders the option to participate indirectly in the upward movement of a stock index without accepting the normal risk associated with investing in the stock market. The actual interest credited to a policy’s cash value is determined by the annual changes of an equities index (excluding dividends). Most insurance companies, including Aviva, use the S&P 500 Index® as the underlying index for their indexed life products.

With indexed life, in years where the underlying index increases, the policy cash value is increased up to a certain limit usually referred to as the growth cap. The cap varies among insurance companies, but is currently somewhere around 10 percent to 14 percent annually. In years where the underlying index is flat or loses value, the cash value is subject to the growth floor. Additionally, some companies offer a cumulative guarantee that assures a minimum effective interest rate over a given time period.

This combination of the potential to realize higher upside returns without the downside risk makes the indexed life insurance policy a unique and attractive cash accumulation vehicle. The companies of Aviva were among the first to offer indexed life insurance, and we have led the industry in indexed life sales since 2001.

How Indexed Life Works
When you make a premium payment, the money goes into what is called the Basic Interest Strategy. The premiums are held there until approximately one year of policy charges and the cost of insurance is accumulated. Funds in excess of this amount may then be directed to the other strategies.

Funds in this strategy earn a fixed interest rate determined by the company. Excess dollars from the Basic Interest Strategy create interest crediting ‘segments’ (depending on the strategy or strategies that you choose). Segments are created two times each month when amounts are available from the Basic Interest Strategy. Over time, a policy will likely contain many active interest crediting segments.

At the end of each indexed strategy crediting period (and monthly with fixed strategies), interest is applied according to strategy specifications and interest credits, if any, for that period are locked in.

At the end of every segment term (one, five or six years, depending on the strategy), the segment dollars mature and are placed back into the Basic Interest Strategy, along with any new premium, to begin working for you again.

Indexed UL Terms
Basic Interest Strategy
The section of the policy that holds net premium payments to fund approximately one year of policy charges and the cost of insurance before they are directed into other strategies. In the event that there is no value in the Basic Interest Strategy, policy charges and the cost of insurance will first be deducted from the values in the fixed-term strategies, if any, and then from the indexed strategies.

Segment
A segment is created each time excess dollars are directed to a fixed-term or indexed strategy. Each segment has its own participation rate and cap rate.

Segment Term
A one, five or six-year period of time that begins when a segment is created. The segment term varies by strategy. Funds cannot be redirected to another strategy until the segment matures at the end of the segment term.

Interest Crediting Period
It may be 12 months or 24 months depending on the indexed crediting strategy. It’s measured from the segment creation date and every segment anniversary thereafter throughout the segment term.

Participation Rate
The participation rate is the percentage of index growth for which the policyholder is eligible to receive in interest credit (subject to the cap rate defined below). The participation rate may be reset for each segment at the beginning of an interest crediting period and at the discretion of the Company. Individual segments may be subject to different participation rates. However, we guarantee that the participation rate on all of our indexed life insurance products will be at least 100 percent for the life of the policy.

Cap Rates
Each calculation period, the segment’s interest credits may be subject to a cap as specified in the contract. The cap rate is the maximum rate used in calculating interest credited to a segment in a given interest crediting period, subject to limitations. The cap rate may be reset for each segment at the beginning of an interest crediting period and at the discretion of the Company. Individual segments may be subject to different cap rates.

Indexed UL Strategies
Although this is an indexed universal life product, you have the option of directing all or some of your premium dollars to a fixed-term strategy. Fixed term strategies are considered more conservative choices.

One-Year Fixed-Term Strategy
Each premium directed to this strategy creates a distinct one-year fixed-term segment. Over time, policyholders will generally have a number of one-year fixed-term segments within their policy. The interest rate for each one-year fixed-term segment created is guaranteed for that one-year period.

Five-Year Fixed-Term Strategy
Each premium directed to this strategy creates a distinct five-year fixed-term segment. Over time, policyholders will generally have a number of fixed term segments within their policy. Other than the minimum contractual guarantee, the current interest rate for this Five-Year Fixed-Term Strategy is not guaranteed. Aviva’s current practice is to maintain a constant interest rate for each five-year segment.

Indexed Strategies
One-Year Point-to-Point Strategy
This strategy uses an “annual reset point-to-point” indexing design. Each year (on the segment anniversary) we measure the S&P 500 Index values. On the anniversary of the segment, we measure the growth of the index from the start of one segment earnings period to the end of the segment earnings period. This value is then multiplied by the 100% participation rate. The resulting interest crediting rate can never be less than zero and can never be more than the annual cap rate. The cap rate can change at the beginning of every interest crediting date, within specified limits.

One-Year Multiple Index Strategy
This strategy uses a “monthly averaging annual reset” indexing design. Each month we measure the index values for each index used in this strategy (S&P 500, NASDAQ-100 and DJIA). On the anniversary of the segment creation date, we separately take the average of those values and compare them to the initial index numbers to determine the percentage change in each index, respectively, which can be positive or negative. We then multiply each of these values by one of the following percentages:
The best performing index receives a weight of 50%
The second best performing index receives a weight of 30%
The third best performing index received a weight of 20%

These values are then added together to determine the growth rate, which can never be more than the annual cap rate. We then multiply that number by the 100% participation rate. The resulting interest crediting rate can never be less than zero. The cap rate can change on every interest crediting date, within specified limits.

One-Year Monthly Cap Strategy
This strategy uses a “monthly reset point-to-point” indexing design. Each month we measure the S&P 500 Index values. The current month’s value is then compared to the previous month’s value to arrive at a monthly percentage change in the index, which can be positive or negative. That index growth rate is then subject to a monthly cap rate, within specified limits. At the end of the policy year, those values are added together. The resulting interest crediting rate can never be less than zero. The monthly cap rate can change on every interest crediting date, within specified limits.

One-Year Monthly Average Strategy
This strategy uses a “monthly averaging annual reset” indexing design. Each month we measure the S&P 500 values. On the anniversary of the segment creation date, we take the average of those values and compare that number to the initial S&P 500 Index value to determine the percentage change in the index, which can never be more than the cap (we do not correctly apply a cap). We then multiply that number by the participation rate. The resulting interest crediting rate can never be less than zero. The cap rate and participation rate can change on every interest crediting date, within specified limits. The participation rate is guaranteed never to be lower than 100%. Current participation rates may be higher.

Two-Year Point-to-Point Strategy
This strategy uses a “biennial reset point-to-point” indexing design. Every two years (on the segment anniversary) we measure the S&P 500 Index values. On the two-year anniversary of the segment, we measure the growth of the index from the start of one segment earnings period to the end of the segment earnings period. This value is then multiplied by the 100% participation rate. The resulting interest crediting rate can never be less than zero and can never be more than the biennial cap rate. The cap rate can change at the beginning of every interest crediting date, within specified limits.

Interest Rate Guarantee
 The Aviva Indexed Life policies provide a guaranteed minimum interest rate of 2%. On the fixed-term strategies, the policy guarantees that the declared interest rate will never be less than 2%. On the indexed strategies, the policy guarantees that the interest credited will never be less than 2% compounded annually over the segment term. The guarantee will be applied at the end of the segment term or upon lapse, surrender or maturity of the policy.

Indexed UL Downloads

Understanding Indexed Life (14888.pdf)

Lifetime Builder II Agent Product Guide (15956.pdf)

Advantage Builder II Agent Product Guide (16480.pdf)

Standard & Poor's (S&P) 500 Composite Stock Price Index (excluding dividends) "S&P®", "S&P 500®", and "Standard & Poor's 500 Composite Stock Price Index®" are trademarks of the McGraw Hill Companies, Inc. and have been licensed for use by Aviva. This product is not sponsored, endorsed, sold, or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of purchasing this product.

NASDAQ-100 Index, excluding dividend income "Nasdaq®", "Nasdaq-100®", and "Nasdaq-100 Index®" are trademarks of The Nasdaq Stock Market, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by Aviva. The Product has not been passed on by the Corporations as to its legality or suitability. The Product is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT.

The Dow Jones Industrial Average, excluding dividend income "Dow JonesSM", "Dow Jones Industrial AverageSM" and "DJIASM" are service marks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by Aviva. The Company's Product(s) based on the Dow Jones Industrial AverageSM, are not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in such product(s).