When selecting an Indexed Universal Life (IUL) for retirement income the loan rules are crucial. John Hancock this February announced a significant change in their loan features. Policy holders are now allowed to switch between their “Index” loan, which is a variable loan, and the standard loan once per year on the policy anniversary. Prior to that once a loan option was selected, the loan option could not be changed while any outstanding debt remains.
North American has a similar feature, although it’s much more flexible. North American allows loans to switch between variable and standard interest rate at any time without a cash payoff.
An escalating variable loan rate could choke off and cripple an Indexed UL designed for retirement income. North American has recently capped their variable rate at 6%. In contrast many carriers, including John Hancock, the variable rate is uncapped. Many carriers base their variable rate on Moody’s Corporate Bond Yield Average. Historical rates for this bond yield have fluctuated considerably, and it’s quite possible they will do so again over the coming decades.
It’s favorable news that John Hancock has changed their rules on switching from variable to standard loan accounts without a payoff. Standard loans do not tend to perform very well in the illustrations I’ve run with the exception of Lincoln. North American has a far superior competitive edge with the variable loan rate capped at 6%.