INDEXED UL
Illustrating Index Loans
One of the benefits of John Hancock’s Indexed UL is its cash accumulation potential. And should your clients want to borrow against
their policy values, they can choose between two loan options: Standard Loans and Index Loans. Both loan options charge a variable
loan rate, but they credit loan interest differently.
• Standard Loans:1 A variable loan rate is charged for the loan and beginning in year 11, the same current rate is credited to a loan
account.2 The result is a Zero Net Cost Loan.
• Index Loans:3 A variable loan rate is charged for the loan, similar to a Standard Loan, but the amount credited to the balance
securing the loan is dependent upon the performance of the Index Account(s). This can result in a loan that has a substantial cost as
high as the variable loan rate, or in some cases a net gain to the policy owner. The applicable Cap and Threshold rates apply to the
amount that is credited to the balance securing the loan.
Although Index Loans can result in much more volatile policy performance than Standard Loans, the potential volatility and risk of these
loans are rarely shown on an illustration. In many instances, the interest credited to the policy is illustrated to be higher than the balance
securing the loan rate in all policy years, thus projecting a perpetual negative loan cost, i.e. gain, for the policy owner.
An alternative example is below. It shows everything is the same for years 1–20. At age 66, the policy owner is taking $50,000 of
income annually to age 85.
Four Scenarios Are Projected:
1. An Index Loan earning 7.96% in all years (Loan Account value earning 4.50%)
2. A Standard Loan earning 7.96% in all years (Loan Account value earning 4.50%)
3. A Standard Loan earning 7.96% to age 65, and 2% thereafter (Loan Account value earning 4.50%)
4. An Index Loan earning 7.96% to age 65 and 2% thereafter (Loan Account value earning 4.50%)
Even at the lower assumed rate of return, the policy with a Standard Loan stays in force (scenario 3). The policy with
an Index Loan lapses at age 81 (scenario 4).
Male, 45, Preferred Non Smoker paying $25,000 per year to age 65, Option 2 to 1 switch in the optimal year, GPT.
Scenario
$3,000,000
1. Index Loan
Policy Value
$2,500,000
$2,000,000
2. Standard Loan
$1,500,000
3. Standard Loan
$1,000,000
4. Index Loan
$500,000
$0
66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85
POLICY LAPSE
Age
The policy with an Index Loan lapses at age 81, and the Policy with a Standard Loan stays in force.
The hypothetical scenario above assumes current rates and charges. This is a supplemental illustration. Not all benefits and values are guaranteed. The assumptions on which
the non-guaranteed elements are based are subject to change by the insurer. Actual results may be more or less favorable.
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Next time you show an Index Loan, consider both the potential benefits and risks to determine if it
is right for your client.
For more information, call your Regional Director or National Sales Support at
888-266-7498, option 2.
1. In the event that a Standard Loan is taken and there is not enough value in the Fixed Account to cover the loan, the balance of
the loan will be secured by the Index Account(s) and treated as an Index Loan until the next segment maturity date, at which
time the balance will be moved to a loan account and treated as a Standard Loan.
2. On a current basis. On a guaranteed basis, there could be a 0.25% net cost to the loan.
3. In the event that an Index Loan is taken and there is not enough value in the Index Account(s) to cover the loan, the balance of
the loan will be secured the Fixed Account and treated as a Standard Loan.
Standard loan requests in excess of the Fixed Account balance can be taken from the Indexed Accounts, but these loans will be treated similarly
to an Index Loan until the Segment Maturity, allowing the Index Loan portion of the loan to be converted into a Standard Loan.
Index loan requests in excess of the Index Appreciation Account will be secured by balances transferred from the Fixed Account to a
Loan Account. Only one type of policy loan may be utilized at a given time. If there is an outstanding Standard Loan, and the policy
owner wishes to take a Index Loan, the existing loan must be repaid first. The opposite is also true; any existing Index Loan must be
repaid before it is possible to take out a new Standard Loan. Index Loan requests in excess of the Index Appreciation Account policy
value can be taken as Standard Loans from the Fixed Account.
For agent use only. Not for use with the public.
Insurance policies and/or associated riders and features may not be available in all states.
Guaranteed product features are dependent upon minimum premium requirements and the claims-paying ability of the issuer.
Insurance products are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02116 (not licensed in New York)
and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. MILNY12191116032 1/12
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