As low interest rates weigh on the returns generated within whole life insurance products, a U.S. insurer is providing policyholders with the prospect of enhancing their returns by linking a portion of the cash value in their policies to the performance of the stock market.
New York City-based Guardian Life Insurance Co. of America announced on Tuesday the launch of a new Index Participation Feature (IPF) rider available on select Guardian whole life policies. It allows policyholders to link a portion of their cash value to the performance of the S&P 500 price return index, subject to a cap and floor.
“The IPF is an innovative rider that individuals and their financial advisors have been looking for during this low interest rate environment,” said Michael Ferik, executive vice president of individual life and wealth management at Guardian, in a statement. “It offers a unique opportunity for index-linked upside potential, while still supporting the robust guarantees that policyholders have come to expect with whole life.”
Specifically, policyholders can choose to allocate a portion of the cash value on their “paid-up additions” to the IPF, choosing an allocation from zero to 100%. (A paid-up addition is extra life insurance that Guardian policyholders can purchase with the dividends they’ve received within their existing whole life policy.)
The dividends that policyholders receive on those allocated paid-up additions will then be adjusted based on the performance of the S&P 500 Index, subject to a 12.5% percent cap and a 4% guaranteed floor.
That provides clients with the possibility of earning a higher level of returns on that portion of their cash value, compared with the level of dividends they would receive without the IPF rider, depending on the performance of the index. Adverse market performance, however, could cause negative dividend adjustments, resulting in lower overall cash values than clients would have accrued without the IPF rider.
The launch of Guardian’s new rider comes as many insurers – in the U.S. as well as in Canada – revamp their whole life insurance products, in an effort to keep them viable and competitive amid sustained low interest rates and rising premiums.
Kingston, Ont.-based Empire Life Insurance Co., for instance, launched a new participating life product called EstateMax earlier this year. That product boasts a feature enabling clients to increase their coverage over time by reinvesting the dividends they receive from the policy, similar to the paid-up addition option offered on Guardian’s whole life products.