The first check might be to simply apply the floor and ceiling caps to the S&P 500, as this would be the equivalent of applying the caps with absolutely no fees or expenses. If the strategy underperforms a mix of the S&PP with US treasuries at the same volatility, then there's no need to go any further. However, if it outperforms...It underperforms (substantially), but not with the same volatility, and not with the same drawdown. And that's the issue.The return is skewed by chopping off all the below 0% returns. So no drawdowns ever. The flipside is that it's skewed on the upside by the cap.This plays right in to the way that the human brain is wired --- we hate a loss more than we love a gain. On the low end, the IUL gives no loss ever, so that pain is completely abolished. In the high end, it gives the gains, it's just that the huge gains are capped to be just slightly better than average gains. But a gain is a gain, so we feel the love.It's really very clever[*]. It plays right into a fundamental human weakness, a spot where we all are vulnerable.[*]Clever in the sense that it exploits a vulnerability, like any good con.
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