#73 | AG49 – Part 5 – Interest Bonuses

So what was that second issue that was left unaddressed with AG49? The small matter of interest bonuses. Truly, in the grand scheme of the discussion, it felt like just a small matter. Interest bonuses have been a part of Universal Life products since they were created and are generally pretty benign thanks to some actuarial testing restrictions that limit gamesmanship. At the time we were working through AG49, there were only a couple of carriers with significant bonuses in their IUL products. Most carriers had taken the stance that if they had excess revenue to pay a bonus, then that revenue should be reworked to show up in the current index caps so that they could get as high of an illustrated rate as possible. Sound logic in a pre-AG49 world. Why would you pay a 0.5% interest bonus when you could figure out a way to spend that 0.5% to buy a 1.25% higher cap and pick up an extra 0.75% in illustrated rate? Trading 0.5% for 0.75% seems like a pretty good deal any day.