The credits received in an IUL is determined *partly* by the selected index price change... and also the floor & caps.No. the credit received is determined COMPLETELY by the point-to-point annual change in the index -- subject to the cap & floor.Every single IUL thing I have read says this quite clearly. Everything from every company I found.The floor & caps are determined by the cost of buying the option spread. But the companies all state that they take all kinds of things into account when they set cap & floor. And they all say that they set the cap at their discretion. What is hard to understand about that?Dictionary defn'n: discretion = Freedom to act on one's own.The cost of a given option spread includes the dividends.Yes. So what? This is a non sequitur.The floor & caps are determined by the cost of buying the option spread.Amoung many factors that the company may choose to consider.100% of *ALL* IULs are built on option spreads.You do not know that. And even if it's true today (which it probably largely is) it does not matter. Does the IUL contract have a clause that says how the company gets the money to pay the policyholder?If it doesn't then the company could invest in anything it wanted to, including Tibetan yak-milk futures. *******************You are confusing "the way I understand how this instrument currently happens to be implemented" with "The way that the company contractually must manage their money." That's where you are going off the rails.The company IS obligated to credit the account according to what the contract says. The company is NOT obligated to do anything that is NOT in the contract.Does the IUL contract specify the formula for determining the cap? Does the contract say that the company can change the cap to whatever they want?ARM mortgages specify exactly how the interest rate is set. There is no ARM I've ever seen that has wording like "we can change the rate at our sole discretion."
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