CARD Q032
An indexed universal life policy credits interest using an index formula. What does that usually mean?
- A zero crediting floor prevents all decreases in cash value
- The insurer invests the owner’s premium directly in shares owned by the owner
- The owner receives the index’s full return, including all dividends
- Credits are governed by contract limits rather than direct index ownership
Credits are governed by contract limits rather than direct index ownership
Participation rates, caps, floors, and policy charges affect results. Index-linked crediting is not the same as owning an index fund.
Why each choice is right or wrong
A. A zero crediting floor prevents all decreases in cash value
Incorrect. A crediting floor does not prevent policy charges from reducing value.
B. The insurer invests the owner’s premium directly in shares owned by the owner
Incorrect. Index-linked crediting does not normally give direct ownership of index shares.
C. The owner receives the index’s full return, including all dividends
Incorrect. Contract formulas can exclude dividends and apply participation rates and caps.
D. Credits are governed by contract limits rather than direct index ownership
Correct. Participation rates, caps, floors, and policy charges affect results. Index-linked crediting is not the same as owning an index fund.
Review the related terms
Use these lessons to revisit the concepts and try additional practice questions.