What is annual point-to-point crediting in IUL?
Most indexed universal life (IUL) policies credit growth to the cash value using annual point-to-point. Only two index readings count: the start of a 12-month segment and its end. What the index does between those two dates has no effect on the credit.
How it works
Each premium, after charges, buys into a segment linked to the index the policyholder has chosen. The insurer records the index value on the segment start date and again twelve months later, on the segment maturity date. It then:
- measures the percentage change in the index over the twelve months, on price return only, so index dividends are excluded;
- multiplies the change by the participation rate;
- limits the result to the cap rate;
- applies the floor, which in most contracts is 0%, so a fall in the index credits zero.
The credit is added to the segment at maturity and locked in. The money then rolls into a new 12-month segment on the same allocation. The cap and participation rate that apply are the rates set when the segment starts, and they hold for its full twelve months.
Worked example
Illustrative figures, not a forecast. A segment of US$100,000 starts with the index at 5,000. Settings: 9% cap, 100% participation, 0% floor.
- Index ends the year at 5,550 (+11%): credit 9%, or US$9,000. The cap applies.
- Index ends at 5,200 (+4%): credit 4%, or US$4,000. Full participation.
- Index ends at 4,750 (−5%): credit 0%. The floor applies and the segment keeps its value before charges.
- Index falls 20% in month six and recovers to 5,100 by the end (+2%): credit 2%. Only the start and end values count.
Policy charges are deducted from the cash value separately from the credit, so the net change in the policy value is the credit less the charges for the year.
In an international IUL
International IUL policies typically set the cap between 9% and 11% on annual point-to-point segments, with a 0% floor. Premium must arrive by the lock-in date, one to three business days before the index day depending on the contract, to join the next segment; a premium that misses it waits in a holding account earning fixed interest. A large single or first-year premium can often be spread across monthly segments, so that one start date does not decide the result for all of it. Index choices vary by insurer and usually include the S&P 500, with a Shariah-compliant index on some policies.
Common questions
Can annual point-to-point lose money in a falling year?
No credit is negative. With a 0% floor, a segment that ends below its starting value is credited zero, and policy charges still apply. "You are guaranteed to never lose money from stock market losses in an Indexed Universal Life policy for the rest of your life."
What is the difference between annual and monthly point-to-point?
Annual point-to-point takes one reading at each end of the year. Monthly point-to-point adds up twelve capped monthly changes, so one sharp monthly fall can cancel several good months. Annual point-to-point suits clients who want the result to follow the year as a whole.
Can the insurer change the cap?
The insurer can change the cap and participation rate for new segments, within the minimums in the contract. A segment that has already started keeps its rates for its twelve months.
Go deeper: how IUL works, with the full crediting figures.
Annual point-to-point is the IUL crediting method that compares an index's value on the day a 12-month segment starts with its value on the day it ends, then applies the participation rate, the cap and the floor.
