Comparing IUL Policy Riders: Annual Reset vs. Monthly Averaging Indexing Methods

Indexed Universal Life (IUL) policies link their interest crediting to an external index (like the S&P 500) using specific **Indexing Methods**. The choice of method significantly impacts the volatility and potential growth of the cash value.

Annual Point-to-Point (Annual Reset)

This is the most common method. The interest is calculated by comparing the index value on the policy’s anniversary date this year to the index value on the anniversary date last year. If the index drops, the loss is capped at 0% (the floor), and the next year’s starting point is “reset” to the low value, protecting previous gains.

Monthly Averaging

This method calculates the index return by averaging the index value over a period (ee.g., 12 months) rather than comparing just two points. This method:

• **Reduces Volatility:** It smooths out market peaks and valleys, protecting against large drops at the policy anniversary.
• **Reduces Gains:** Because it averages gains, it often results in lower credited interest than the Annual Reset method during strong bull markets.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. The indexing method is a key variable in IUL performance; ask your agent to illustrate both options before purchase.