A quick thought on excess return indexes in indexed insurance products (IULs & FIAs): After reviewing numerous policies, illustrations and their fine print, I’ve noticed that excess return funds are often included as an option, but their details are not always clearly explained. Sometimes even the fact that they are Excess Return funds is not disclosed.

If I were considering allocating to an excess return indexing segment, I’d want a clear understanding of what that involves. Specifically, I’d need to know that interest rates can serve as a hurdle rate (and backdoor fee) that must be surpassed before generating a positive return. For example, with the SOFR rate currently at 4.83%, that’s a significant hurdle to clear before seeing any positive crediting.