Chaffee & Associates has created a new life insurance product called index universal life that will capture upside growth and protect assets in a down economic cycle.

The product’s performance is based on an index return, similar to the S&P 500. The product has a cap of around 12 percent and a floor of 0 percent. If the index exceeds 12 percent, consumers get 12 percent. If the index is negative, they get 0 percent. If the index is between 0 and 12 percent, consumers get the actual index return.

The insurance companies then realized that the consumers still wanted the guaranteed death benefit, so they put a rider on the product to guarantee the death benefit. Thus there is the potential for greater cash value, protection from market downturns and a guaranteed death benefit.

This new product is the result of 180 years of change and chasing higher rates of return within an insurance policy. For more than 100 years, insurance products were guaranteed for consumer’s whole lives, with death benefits, cash values and guaranteed premiums. In the 1970s, however, interest rates started to increase dramatically.

In response, E.F. Hutton created a revolutionary product that allowed the policy performance to be based on mid- and short-term interest rates. This had a huge impact on consumers as the policy performance shifted from the insurance companies’ guarantees to what the consumer experienced in the policy performance. Many of these policies were illustrated at high interest rates which have since been drastically reduced, resulting in under-funded policies.

The next change came when the insurance companies created policy sub-accounts based on equity rates of return. When market results flattened out over a 10-year period from 2000 to 2010, these policies also became underfunded, resulting in the need for higher premiums. The insurance industry responded by flipping back to the consumers’ desire for guarantees. The insurance companies created a new product with guaranteed premiums and a guaranteed death benefit. These policies had very little cash value because most of the premiums were being used to maintain the guarantees. When interest rates dropped, the insurance companies had to raise premiums on the new policies.

The new index universal life product will ensure that consumers won’t have to worry about rising and falling interest rates or higher premiums. The return will stay in between the policy’s cap and floor no matter what the market actually returns.