Investment Options in Universal Life Insurance
And what investment options are available for you when you invest in this insurance?
Generally, you can choose to invest in any combination of:
The Daily Interest Account is similar to a typical savings account at various financial institutions. Any amount in this account will earn interest, calculated daily on a compound basis at a rate declared by the insurance company from time to time.
Guaranteed Deposit Account is a fixed term investment account. Depending on an insurance company, Guaranteed Deposit Accounts are available with terms 1, 3, 5, 10, 15 and 20 years. The rate of interest is guaranteed not to change for the term chosen. At maturity, amount in each account will be reinvested at rates then in effect for the same term unless you have sent a written notification to the contrary. Deposit allocated to each account less any deductions and withdrawals earns interest calculated on a compound basis. An insurance company may require a minimum deposit to invest in these accounts.
Linked Interest Options gives you an opportunity to receive interest based on the movement of the index or performance the Linked Interest Option is mirroring. You are not investing or buying units in the mutual funds or index being tracked; you are placing your money on deposit with the insurance company. The interest credited or debited to your account is guaranteed to be on the performance of the relevant fund or index the Linked Interest Option is tracking.
An index is a time series of numbers that represent a combination of various securities’ prices that can be used to measure ups and downs of stock and bond markets. For example, the TSE 300 Composite Index measures changes in the market value of portfolio of 300 stocks, reflecting market prices and the number of shares outstanding for the companies in the index.
Insurance companies offer plenty of Linked Interest Options for investment at different level of risk. You can choose tracking:
You can choose tracking a performance of the mutual fund or the fund portfolio, which can be created for you depending on your risk tolerance, financial goals and preferences. It means that your investment account will be credited or debited interest based on the net rate of return of the mutual fund or fund portfolio.
Due to the variable nature of the market, the value of the Linked Interest Options will fluctuate positively or negatively in any given period depending on the market conditions. While Linked Interest Options may provide the potential for greater rates of return over the long term, there is an inherent risk in selecting them as investment options. Unlike investing in the Daily Interest account or the Guaranteed Deposit Accounts where there are guarantees surrounding the credited interest rates, investments in the Linked Interest Option are not guaranteed.
If you have a value of $2,000 in the account that tracks NASDAQ 100 Price Index, and this index increases from 1500 to 1545 (a 3% increase), the value of your account will increase by the credited 3% interest to $2,060. On the other hand, if the index decreases from 1500 to 1455 (a 3% decrease), the value of your account will receive a debit of negative rate of interest of 3% to $1940.
Many insurance companies provide you with Investment Bonus, which you can earn in addition to the interest earned in your investment accounts, if your policy has been in force for a certain period of time (for example, more than 4 years).
Revised: May 18, 2016.