2024 S&P 500 Crash: How Your Index Universal Life (IUL) Protects You

The stock market is giving off major "Black Monday" vibes, with the Dow plunging 1,000 points and the S&P 500 experiencing its worst day since 2022 in a global sell-off, as reported by CNBC and Reuters. This correction in the market has left many investors worried. But what does this stock market correction mean for your Index Universal Life (IUL) insurance policy?

Your Financial Safeguard in a Volatile Market

IUL policies offer a unique blend of life insurance protection and the potential for cash value growth linked to the S&P 500's performance. But remember, your IUL policy isn't directly invested in the stock market. Instead, it tracks the index's performance within certain limits.

How the S&P 500's Correction Affects Your IUL

• Capped Gains:  Even during market surges, IUL policies have a cap on the maximum return credited to your policy. This means you still benefit from positive market performance, but your gains are capped at a predetermined rate (usually 10-12%).
• Zero Losses: The beauty of IUL is the protection against market losses. Your cash value is safeguarded, even during corrections like the one we're seeing now. This is a major advantage over direct stock market investments.

S&P 500 and Nasdaq 100 Performance in 2024 (Up to Augus 5th)

The year 2024 has been a rollercoaster ride for stock marketa. Here's a quick look at the monthly performance of the S&P 500 and Nasdaq 100:

S&P 500

• Jan: +1.59%
• Feb: +5.17%
• Mar: +3.10%
• Apr: -4.16%
• May: +4.80%
• Jun: +3.47%
• Jul: +1.13%
• YTD: +12.99%

Nasdaq 100

• Jan: +4.3%
• Feb: +7.5%
• Mar: +2.9%
• Apr: -3.80%
• May: +6.1%
• Jun: +4.0%
• Jul: +1.5%
• YTD: +10.10%

While both indices saw significant gains in the early months of 2024, they also experienced notable pullbacks in April, driven by concerns over interest rate hikes and weaker economic data. They then recovered some ground, demonstrating the resilience of the market. And now in August we are witnessing a correction. How big the stock market market correction will be is impossible to tell right now.

"Sell in May and Go Away" could well turn out to be true for 2024. The old phrase that reflects the historical trend of lower stock returns between May and October compared to the rest of the year.

Your Options as an IUL Investor

During times of market volatility, IUL policyholders have a few options:

1. Stay the Course: Your IUL policy is designed to weather market storms. If you have a long-term investment horizon, staying invested in your IUL is a prudent choice.
2. Switch to Fixed Rate Returns: Some IUL policies allow you to switch a portion of your cash value to a fixed interest rate account. This can provide stability during turbulent market conditions. Current fixed rates are around 4.5%, offering a guaranteed return on your investment.
3. Dollar-Cost Average: If you're comfortable with market fluctuations, you can consider dollar-cost averaging into your IUL policy. This involves investing a fixed amount at regular intervals, regardless of market conditions. This strategy can help you take advantage of market dips and potentially buy more market exposure when indicies are lower.

Is IUL a Good Investment?

While no investment is without risk, IUL policies can be particularly attractive during periods of stock market volatility. The combination of life insurance protection, potential for cash value growth linked to market performance, and protection against market losses make IUL an appealing option for those seeking both financial security and growth potential.

In times of market corrections, the downside protection offered by IUL policies can be invaluable.  This, coupled with the flexibility to switch to fixed rates or dollar-cost average, can help investors navigate uncertain market conditions while still working towards their long-term financial goals.

The Takeaways for IUL Policyholders

• Stay Calm: Market corrections are normal. Your IUL policy is designed to weather these storms.
• Consider Your Options: Explore the different options available to you as an IUL policyholder.
• Consult Your Advisor: If you're unsure of the best course of action, talk to your life insurance agent or financial advisor. They can help you make informed decisions based on your individual circumstances and financial goals.

Want to Learn More About Protecting Your Financial Future?

Contact us today for a personalised consultation and discover how an IUL policy can help you achieve your financial goals, even in uncertain market conditions, or if you want to see how an IUL could look for your, please complete our quick IUL quote form.

Disclaimer

This article is authored by Carlton Crabbe, Chief Executive Officer of Capital for Life, a specialist indexed universal life insurance broker. The information provided in this article is for educational and informational purposes only and should not be construed as financial or investment advice. While the author possesses expertise in the subject matter, readers are advised to consult a qualified financial advisor before making investment decisions or purchasing life insurance products.