How IUL index crediting works: segments, point-to-point, lock-in dates and zero years

Definition in one sentence

IUL index crediting is the process by which the insurer takes the change between two index levels, at the start and end of a segment, applies participation rate, cap, spread and floor under the contract formula, and credits the result to the account value as one interest amount. The account does not actually hold the index or any shares; the index is simply the yardstick used to calculate interest.

MoneySense (MAS) describes the return on universal life as depending on a crediting rate that the insurer declares from time to time and that cannot fall below the minimum crediting rate stated in the contract, which can be set at 0% (updated 28 Sep 2026). An IUL differs in that the rate on the index account is not "declared" by the insurer but calculated by a contract formula from the index. The LIA illustration guidelines likewise classify this type of product as having non-guaranteed benefits determined by a selected index (MU 22/24, §2.14; the clause is the same as in the 2018 edition).

From premium to segment: how money queues into the index account

After a premium is paid, a premium charge is usually deducted to arrive at the net premium, which is then allocated between the fixed account and the index account in the proportions chosen. Prudential's product page says up to three of seven indices can be selected (as at 12 Oct 2026). Money entering the index account does not immediately "follow the index"; it waits for a segment to start. Great Eastern's quarterly statement lists the cap rate and crediting rate of each segment opened in the last 18 months, and the insurer offers an optional arrangement to spread a premium across several segments (as at 17 Aug 2026). A single policy therefore often holds several segments with different start dates and different parameters.

Point-to-point: the five steps

Point-to-point is the most common method on the Singapore public product pages reviewed for this site. For example, Singlife's product page says the index crediting rate is calculated from the point-to-point performance of the selected index (5 Sep 2024). The SEC's investor education material defines it just as simply: the index level is compared at two points in time within the crediting period.

1. Take the closing index level on the lock-in date as the starting level (S0).
2. No interest accrues during the segment term: however the index moves in between, the account value does not move with it.
3. Take the index level on the segment end date as the ending level (S1).
4. Calculate the index change g = (S1 − S0) ÷ S0.
5. Apply participation rate, cap, spread and floor in turn to obtain the crediting rate, multiply by the segment amount and credit it once (for the order, see How the four parameters offset one another).

The table below uses one set of assumed parameters: participation rate 100%, cap 10%, spread 0%, floor 0%, and a segment amount of 100,000 currency units. It is illustrative only, not the current parameters of any product and not a quote.

Rise then fall versus fall then rise: is the result the same?

Point-to-point looks only at two levels and ignores the path. The highest point reached in between is not "remembered".

The third row shows a common gap between perception and outcome: the index may have been "up 30%" on paper part-way through, but settlement looks only at the end level. Other methods do exist, such as the averaging method described in the SEC material, which compares the average of the index at several points during the period with the starting level. Whether a particular IUL uses one must be checked in its product summary. The U.S. AG 49-A defines the "benchmark index account" for illustrations as one that uses only the start and end levels of the S&P 500 over one year, with an annual cap, a 0% floor, a 100% participation rate and interest credited once a year (NAIC, 11 Dec 2025), which shows how typical point-to-point is. That rule applies to policies sold in the United States, not to Singapore products.

Lock-in dates, price indices and dividends

The contract states which day supplies the starting index level, which day supplies the ending level and how many days the segment term actually contains. Readers should check these three dates in the product summary rather than infer them from the words "one year".

Another commonly overlooked basis is the price index. Singlife's product page states that the index crediting rate is calculated without dividends (5 Sep 2024), and the SEC material also notes that index growth generally excludes dividends from the constituent shares. The implication is that index interest is not the "total return from buying these shares": the part of the return that dividends represent does not reach the account. An excess return index also deducts a cash benchmark rate on top of this; see Index options.

What "floors at zero" and "locked-in gains" actually lock in

The floor and "locked-in gains" are often summed up as "you cannot lose", which is the most common source of misunderstanding.

The simplified three-year illustration below shows that a floor does not mean the account value cannot fall. It assumes total annual charges of 1.5% of the opening account value; this is illustrative only and not any product's rate.

The 8% credited in Year 1 is not clawed back in Year 2, but charges continue in both 0% years and the account value drifts down. Real charging structures are more complex; see IUL cost of insurance and charges.

Mid-segment movements and the order of deductions

Crediting and liquidity on an index account are tied to the segment term; unlike a fund, the account cannot be redeemed at the net asset value at any time. How the contract treats the following actions during a segment term varies.

Charges are usually deducted monthly from the account value, whereas index interest is credited once at the end of the segment term, so the rhythms differ. In the "account value calculation" clause, confirm which account each monthly deduction is taken from and whether it is pro rata, and whether index interest is calculated on the amount allocated at the segment start or on the balance after deductions. This site does not assume any one practice.

Checklist

1. Length of the segment term and whether the method is point-to-point.
2. The lock-in date for the starting level, the segment start date and the end date.
3. The name of the index and whether the return basis is price return, excess return or total return.
4. Current parameter values and the contractual minimum guaranteed values; see Caps, participation rates, spreads and floors.
5. Whether the floor is 0% or above 0%.
6. The holding account's rate and maximum time money can stay there.
7. How current-period index interest is treated on a mid-segment withdrawal, loan, surrender or death.
8. Which set of parameters the benefit illustration uses; see How to read a benefit illustration.

If you would like a product summary or benefit illustration interpreted in light of your own circumstances, you can register your needs through the contact details on this site.