The Pacific Horizon IUL 2 (Indexed Universal Life) is a permanent life insurance product offered by Pacific Life, designed to provide lifetime death benefit protection, flexible premium payments, and the potential for cash value growth linked to the performance of a stock market index, while offering a measure of protection against market downturns.

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Key Features and Benefits

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1. Indexed Cash Value Growth Potential

The policy's cash value growth is tied to the performance of various market indices, without directly investing in the stock market.

 

• Indexing Strategies: The policy typically offers several indexing options, such as the S&P 500 or other diverse indices. These strategies determine how interest is credited to the cash value based on index performance.

• Cap Rate: The maximum rate of interest the policy can earn during an indexing period, regardless of how high the index performs.

• Floor Rate (or Minimum Interest Guarantee): A guaranteed minimum interest rate (often 0% or higher) applied to the indexed account. This feature protects the cash value from negative returns if the chosen index declines.

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2. Death Benefit Protection

The primary function of the IUL 2 is to provide a tax-free death benefit to beneficiaries upon the insured's passing.

 

• Flexible Options: Policyholders can typically choose from multiple death benefit options:

  • Option A (Level Death Benefit): The death benefit remains level. As the cash value grows, the net amount at risk (the amount paid by the insurer) decreases.

  • Option B (Increasing Death Benefit): The death benefit is the initial specified amount plus the accumulated cash value. This option may result in higher premiums but provides a potentially larger benefit.

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3. Premium Flexibility

One of the defining characteristics of Universal Life policies is the flexibility in premium payments.

 

• Adjustable Payments: After the initial required payment, policyholders can adjust the timing and amount of subsequent premiums, provided the cash value is sufficient to cover the policy's cost of insurance (COI) and administrative charges.

• Lapse Protection: The policy may offer an optional feature, such as a No-Lapse Guarantee Rider or similar provision, which can keep the policy in force even if the cash value drops to zero, provided a specified minimum premium is paid.

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4. Access to Cash Value (Living Benefits)

The accumulated cash value can be accessed during the insured's lifetime, typically through loans or withdrawals.

 

• Policy Loans: Cash value can be borrowed against, usually at a competitive interest rate. Loan repayments are flexible, but unpaid loans reduce the death benefit.

• Withdrawals: Direct withdrawals of cash value are possible, but they permanently reduce the death benefit and may be subject to taxation if the withdrawal exceeds the basis (premiums paid).

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5. Riders and Customization

Pacific Horizon IUL 2 typically offers a range of optional riders to customize the policy for specific needs:

 

• Chronic Illness Rider (Accelerated Benefit Rider): Allows the insured to access a portion of the death benefit early if they are certified as chronically ill.

• Waiver of Stipulated Premium Rider: Waives premium payments if the insured becomes totally disabled.

• Term Insurance Rider: Allows for the purchase of additional term life coverage on the insured or a spouse/child within the same policy.

• Guaranteed Insurability Rider: Provides the option to purchase additional coverage at specified future dates without proof of insurability.

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Considerations and Risks

• Fees and Charges: IUL policies are subject to various charges, including the Cost of Insurance (COI), administrative fees, and surrender charges if the policy is terminated early. These charges can erode cash value, especially in early years or during periods of poor index performance.

• Complexity: IULs are more complex than traditional whole life or term life policies, requiring careful monitoring and understanding of how index crediting works.

• Non-Guaranteed Components: The cash value growth rate, cap rates, and the COI (which may increase over time) are non-guaranteed and can affect the long-term performance and sustainability of the policy.

• Over-Lending/Over-Withdrawing: Aggressively accessing cash value through loans or withdrawals can put the policy at risk of lapsing if the remaining cash value is insufficient to cover ongoing costs.

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Suitability

The Pacific Horizon IUL 2 is often suitable for individuals seeking:

 

• Permanent life insurance protection.

• The potential for greater cash value accumulation than a traditional whole life policy, balanced with the security of a floor rate.

• Flexibility in premium payments.

• A vehicle for tax-advantaged accumulation and distribution (provided the policy remains compliant with IRS regulations).