How to Compare Equity Indexed Universal Life Insurance

by Anna Assad

Equity indexed universal life insurance is an insurance policy with a cash value that grows with the stock index, but without the commonly associated stock market risk. Like traditional universal life insurance, an equity indexed universal life insurance policy has a fixed interest rate. However, you also have the option of placing part of the premium payment into an equity-indexed account instead of an account with the fixed interest rate. If the index rises, your account will gain value. You should never forget, of course, that an equity indexed universal life policy is an insurance policy that will charge you for its insurance guarantees -- it is not the equivalent of an investment account that may be able to offer you similar returns at a much lower cost, but at a greater risk of loss.

1. Check the financial rating of the different insurance companies you're interested in with independent financial services, such as Moody's and Standard & Poor’s. Because the insurer is handling your policy and indexed account and it must be able to stand behind the guarantees it makes to you in your policy, you'll want a company with the highest ratings available.

2. Study the projected interest rates on the life insurance policy illustrations. While a minor difference, such as 1 percent, in projected interested rates may not seem significant, it can have a significant impact on cash value over a long period, such as 30 years.

3. Check the guaranteed interest rate. If the insurer offers a guaranteed interest rate, you'll get interest even if the money in the indexed account didn't have any gains.

4. Check the current and guaranteed minimum index cap rates. The rates are variable, but if one insurer's index cap rate is much higher than that offered by other companies, the figure may be unrealistic.

5. Confirm the current and projected participation rates. Ideally, the rate will be 100 percent, a full investment of the money in the index account. Also check the index floor, which should be 0 percent for all policies you look at. Because equity indexed life insurance isn't a security, no investments should risk principal funds.

6. Look at the lengths of the index segment periods. The segment period is how long your funds must remain in the index account. Index segment periods can range from one year to six years. You may want to review your options if your account does not perform well, as a shorter index period may be worth considering.

7. Consider the index crediting methods each insurer offers. The annual point-to-point method determines interest paid, if any, by using the beginning and ending index values from the index segment period. The daily averaging method weighs the average of the index value over the entire period against the beginning index value. The daily averaging method, although less common, can ease the bumps of an unstable stock market. Neither method guarantees a return, so select the method you feel the most comfortable using.

8. Compare the charges and fees including, but not limited to, the policy premium. An equity indexed universal life insurance policy carries administration fees and other charges.

9. Review policy surrender charges. If you must cash in your policy during the surrender period, you'll be charged fees. Look at the fees and the length of the surrender period for each insurer.

10. Compare death benefit guarantee periods. The death benefit guarantee period is the length of time the insurer will guarantee coverage as long as you pay your premiums. This can be anywhere from five to 15 years depending on the company. Some insurers offer lifetime guarantees if you're willing to pay a higher premium.

11. Review each insurer's offered policy riders if you need coverage for specific areas not covered by a standard policy. For example, a guaranteed insurability rider allows you to renew the policy without providing additional evidence of your insurability.


  • Check if the insurers offer loans against the policy's cash value if you think you may need to access the cash value of your policy. If you can take out a loan, you won't have to surrender the policy in most cases.


  • Check the terms of all policies you review carefully to avoid getting a product that doesn't meet your needs or goals.

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