The Index and Indices

Simply put, an indexed life product can shift the responsibility of declaring renewal rates away from the insurer’s Board of Directors to an external force such an index. Indexed annuities actually began in the early 1980’s when one insurer decided to pay interest rates at renewal based upon an index called the ‘Solomon Brother’s Bond Utility Index.’ Other insurers surfaced and followed different indices. Indexed life emerged in 1995, and today more than 30 carriers compete in this rapidly expanding market.

Fortunately, financial professionals have realized the importance of interest rates beyond the first year. These professionals asked themselves what would compound the most money…the first year initial interest rate, or the interest rates declared in years two and thereafter? Not only were the actual renewal rates a specific concern for some parties, but the method some insurers used in determining these rates was confusing to others.

One hundred percent of indexed life products today offer the Standard & Poor’s 500^® Index as an option for indexing premiums off of. On the other hand, nearly 60% of products offer the S&P 500^® as the only indexed option. Usually insurers introducing a new indexed life product for the first time make the choice to offer the Standard & Poor’s 500^® Index. There are many other indices offered on indexed life products today, however.

Indexed Life Indices Offered

1. Standard and Poor’s 500^® (S&P 500)
2. Standard and Poor’s 400^® Midcap (S&P 400)
3. Dow Jones Euro Stoxx 50^®
4. Dow Jones Industrial AverageSM (DJIA)
5. Heng Seng (on multiple indice method only, not independently)
6. Nasdaq-100^®
7. Russell 2000^®

Standard & Poor’s 500^® Index

Standard & Poor’s 500^® Index Composite Stock Price Index is a market-value weighted index of 500 stocks that are traded on every major U.S. stock exchange, NYSE, AMEX, and NASDAQ.

The 500 companies listed are not necessarily the 500 largest, but they tend to be the leading companies in the leading industries. As a result, this index is highly recognized, regarded, quoted, and often used as a benchmark for economic growth. Most of the companies comprised in the Standard & Poor’s 500^® Index are household names. The Standard & Poor’s 500^® Index is not only widely published in most daily metropolitan newspapers, but also in The Wall Street Journal, USA Today, and the New York Times.