#6 | Dividends and Indexed UL

The indices used to peg returns in IUL policies are price-only indexes and do not include dividends – reinvested, paid in cash or otherwise. They’re simply the weighted sum total of the prices of the constituent stocks. But does that mean that dividends have no impact on Indexed UL? It’s an important question. IUL detractors point out that dividends have comprised a significant portion of long-term equity returns and that IUL is, therefore, a structurally inferior product compared to VUL. IUL promoters ignore the dividend angle altogether and use the hypothetical historical lookback performance as evidence of IUL’s superiority. I tended to fall more in the former camp before a few smart folks at a life insurer opened my eyes to a new angle on the dividend question that I think is well worth exploring and ultimately leads to a much cleaner presentation of IUL’s risks and rewards.