IUL insurance credits interest based on index gains like the S&P 500 without direct market exposure. The par rate, one of four factors that determine credited interest, is the percentage of index gains actually credited to your contract each year.
Indexed retirement insurance contracts credit interest to your money by tracking the gains of a market index, like the S&P 500, but without the risk of losing any of your money whenever the market index is down. However, the interest rate credited to your money is not the actual gains in the market index, because your money is not actually invested in shares of the index, nor in the stock of any companies that make up the index. Which means that the interest rate credited to your money is only tracking the gains in the market index. And the difference between the actual index gain and the interest rate credited to your money is typically determined by one or a combination of four rate factors: a par rate, a cap rate, a margin rate, or a bonus rate. Let's begin with the par rate. A par rate is a percentage of the index gain that will be credited to your contract each year.
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