No. of Recommendations: 2
If you are going to point out that the "cap" on gains is a negative because the S&P often rises more than 15%, you must also point out that the "floor" (no loss of principal) is a positive - as I believe the S&P returns are negative about 1/3 of the time.

Some more actual data, because there's nothing on TV and I'm bored. ;-)

Spreadsheets are fun...
I downloaded the S&P500 monthly prices since 1971 and computed all the rolling 12-month gains. That's a total of 480 12-month periods. (All calculations here exclude dividends.)

rtn Count Pct
<0 133 28%
> 0% 347 72%
> 5% 299 62%
> 15% 160 33%
> 16% 153 32%
> 20% 117 24%
> 30% 44 9%

Not quite 1/3 of the time, the 12-month return is a loss. So the floor of a IUL comes into play and you don't get hit by those losses.

But...well, look at that, 1/3 of the time the return is above 15%, so you hit the cap (assuming a 15% cap), and you miss out on all the gain over 15%. Not so good. You get the 15%, which is good, but nothing more. Sooooo, just how much gain is foregone? Surely it couldn't be much, right? Wrong.

But first, let's look at those 28% of the time when the S&P had a loss. The average loss was -13.6%. Cool -- about a third of the time you ducked an average loss of 14%. Yipee.

Okay, so how about the magnitude of the gains in excess of the cap?

Cap pct 5% 15% 16% 20%
Excss 13.5% 10.8% 10.3% 8.9%
Count 299 160 153 117
% times 62% 33% 32% 24%

Hmmmm. One-third of the time you got capped at 15% and left 11% on the table. You do a little happy-dance, but it's rather muted because you didn't get that other 11%. Hmmm, I wonder where it went? The market returned 26%, I got 15%, but where did that other 11% go to? Maybe it went to offset the losses when the floor got hit? S.W.A.G. = 33% of the time the excess gain was 11% and 28% of the time the avoided loss was 14%, so using handwaving fuzzy math that's pretty close to a wash.
SOMEBODY took the loss when the market lost, and if it wasn't you then it was the IUL company. Likewise, SOMEBODY got the excess gain, and if it wasn't you then it was the IUL company.

'course, the total return of the S&P500 is not just the price. It also throws off dividends, about 2.6% a year average. The dividends come like clockwork, irregardless of any loss or gain in the share price. We don't get any of that, since [almost] all IUL's exclude dividends in the returns credited to you. The market paid a dividend and SOMEBODY received it, and if it wasn't you then it was the IUL company.
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