Early Cash Value Rider

The Early Cash Value Rider is added to Indexed Universal Life to reduce or eliminate the policy's Surrender Charge in the early years. There is a fee associated with such a rider, but the net effect is to make certain IUL policies 90% to 100% liquid - even in the first policy year.

The trade-off for this early liquidity is lower Cash Values later - usually beginning in the sixth policy year. However, the farther you go into the policy, the less negative effect these fess have on overall performance. One carrier studied illustrates only decrease of 3 basis points in Cash Value when carried to life expectancy. In other words, to obtain higher cash liquidity in years 1 through 5, a policy that would have an internal rate of return of 8.35% by age 90 might return 8.32%.

Early Cash Value Riders are often used in Premium Financing and 409A scenarios, but may make sense to any policyholder that may need access to his money early on, either through surrender or through policy loans.