Pacific Horizon Survivorship Indexed Universal Life (IUL)

The Pacific Horizon Survivorship Indexed Universal Life (IUL) from Pacific Life is a permanent life insurance product designed primarily for estate planning and wealth transfer. As a survivorship (or second-to-die) policy, it insures two lives, typically spouses, and pays out the death benefit only upon the death of the second insured person. This structure offers several key advantages for couples planning their financial legacy.

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Key Features and Components

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Survivorship Structure (Second-to-Die)

The defining characteristic is the joint-life coverage.

 

• Payout Trigger: The death benefit is paid only after the second insured dies.

• Estate Planning Focus: It is commonly used to provide liquidity for estate taxes, fund a bypass trust, or leave a substantial inheritance to heirs.

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Indexed Universal Life Mechanics

As an IUL product, the policy's cash value growth is linked to the performance of a market index, such as the S&P 500, without directly investing in the market.

 

• Cash Value Accumulation: A portion of the premium payments goes toward the policy's cash value, which accumulates tax-deferred.

• Index Segments: The cash value growth is based on various index strategies chosen by the policy owner.

  • Caps: The maximum percentage of gain the policy can credit in a given period, regardless of the index's performance.

  • Floors: The minimum guaranteed interest rate (often 0% or 1%) the policy will credit, protecting the cash value from market losses.

  • Participation Rates: The percentage of the index gain credited to the cash value in uncapped strategies.

• Guaranteed Minimum Interest Rate: While the indexed component has a floor, the policy itself usually carries a long-term minimum guaranteed rate for the cash value.

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Death Benefit

• Tax-Free Payout: The death benefit is generally paid to the beneficiaries income-tax-free under current tax law.

• Guaranteed Protection: The death benefit amount is specified in the policy contract and is guaranteed, provided the policy remains in force and all premiums are paid.

• Flexible Options: Policyowners can often choose between two death benefit options:

  • Option A (Level): Pays the face amount of the policy.

  • Option B (Increasing): Pays the face amount plus the accumulated cash value.

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Premium Flexibility

• Non-Guaranteed Premiums: Unlike Whole Life insurance, IUL premiums are flexible after the initial payment. Policyowners can pay premiums above or below the target premium, adjusting the payment based on the policy's current cash value and necessary funding to keep the policy in force.

• Lapse Protection: The policy typically includes a No-Lapse Guarantee Rider or similar feature, which ensures the policy remains in force for a specified period (e.g., 10 or 20 years), even if the cash value drops, provided a required minimum premium is paid.

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Access to Cash Value

Policyowners can access the cash value for any purpose through tax-advantaged loans and withdrawals.

 

• Policy Loans: Loans against the cash value are generally tax-free. Interest is charged on the loan, and any outstanding loan balance reduces the eventual death benefit.

• Withdrawals: Withdrawals may be subject to tax if they exceed the cumulative premiums paid (cost basis).

Potential Riders (Vary by State and Policy)

Riders enhance the policy's functionality or provide additional benefits.

 

Rider

Description

Waiver of Stipulated Premium Rider

Waives the required premium payment if both insureds become totally disabled.

Waiver of Monthly Deductions Rider

Waives the monthly policy charges (cost of insurance, administrative fees) if both insureds become totally disabled.

Chronic Illness Rider

Allows early access to a portion of the death benefit if one of the insureds is certified with a qualifying chronic illness.

Terminal Illness Rider

Allows early access to a portion of the death benefit upon diagnosis of a terminal illness for one of the insureds.

Guaranteed Insurability Rider

Allows for the purchase of additional insurance at specific future dates without further evidence of insurability (less common in Survivorship policies).

Suitability

The Pacific Horizon Survivorship IUL is typically suited for:

 

• High Net Worth Individuals/Families: Those with substantial assets who anticipate a federal or state estate tax liability.

• Business Owners: Used in business succession planning, such as funding a buy-sell agreement upon the death of the second owner.

• Charitable Giving: Naming a charitable organization as the final beneficiary for a large future gift.

• Wealth Transfer: Couples whose primary goal is to maximize the inheritance passed on to the next generation.