This analogy is fairly close. Indexed Universal Life (IUL) is like a yacht. To maximize cash value during market gains, sails are set during favorable conditions. The mast acts like the cap. Right now the highest cap rates are running about 14%. So that is like a 14 foot mast. The participation rate, or par, acts like a sail, ideally like a spinnaker, to maximize cash value. Most of the carriers offer a 100% par rate. Many guarantee a 100% par. But that doesn’t mean the carrier can’t still control crediting cash value in too favorable market conditions. If the market index went ahead the carrier’s ability to credit, the cap rate would be lowered. It is like in favorable winds, no matter how large the sail, if the mast is only 8 feet tall, you’re not going to catch as much of those winds.
The overall elements of an Indexed Universal Life: cap, par, fixed account, indexed accounts, cost of insurance, the carrier, needs careful review before selecting the best product. Just as a yacht, one needs to examine the craft overall: masts, sails, engine, weight, center board and design.