Before any question about value, confirm what kind of contract you actually hold — because indexed universal life and indexed annuities are frequently confused, they share crediting language almost word for word, and only one of them can be sold in a life settlement. An indexed universal life contract insures a life and pays a death benefit. An indexed annuity is an accumulation and payout contract with no underwritten death benefit to transfer. Both credit interest subject to caps, participation rates, and a floor, and both are sold with brochures that look nearly identical to a non-specialist.
This distinction matters more than usual with GBU Financial Life, a fraternal benefit society founded in Pittsburgh in 1892 as the Greater Beneficial Union and still headquartered there. GBU’s product emphasis in the current market has been weighted heavily toward annuities, particularly multi-year guaranteed contracts distributed through independent agents. That does not mean no indexed life exists in its book — closed and legacy blocks stay in force for decades — but it does mean you should read the contract rather than assume, and this page will not name a current product we cannot verify you own.
Read the cover page and record the product name, the form number, the issue date, and whether the document refers to an insured and a death benefit or to an owner, an annuitant, and an accumulation value. That one distinction determines everything that follows. Pine Lake Life Solutions provides education and a free policy review, and does not give legal, tax, or investment advice.
In This Article
- Telling Indexed Life From an Indexed Annuity
- If It Is an Annuity, Here Is Where That Leaves You
- If It Is Indexed Universal Life: The Three Parameters
- The Charges That Do Not Stop in a Zero Year
- What to Request, and How to Read It
- How a Buyer Values an In-Force Indexed Policy
- The Fraternal Layer: Assignment and Guaranty Coverage
- Pennsylvania’s Inheritance Tax and the Final Decision
- Frequently Asked Questions
Telling Indexed Life From an Indexed Annuity
Four tests settle it quickly. Life insurance names an insured and states a death benefit or face amount on the schedule page. An annuity names an annuitant, states an accumulation value, and describes annuitization or income options rather than a face amount.
Life insurance deducts a monthly cost of insurance charge; look for that term on your annual statement. An annuity has no cost of insurance because nothing is being underwritten. Life insurance required health questions or an exam at application; an annuity generally did not. And life insurance was purchased to pay someone at your death, while an annuity was purchased to grow money or produce income.
If the statement shows a cost of insurance deduction and a death benefit, you hold life insurance. If it shows an accumulation value, a surrender charge schedule, and no mortality charge, you hold an annuity. When both a life policy and an annuity exist in the same file — which is common — separate them and evaluate each on its own.
If It Is an Annuity, Here Is Where That Leaves You
Annuities are not sold in the life settlement market. There is no death benefit to underwrite and no mortality risk for a buyer to price. What exists instead is a different and much smaller secondary market for structured settlement payment rights and certain annuity income streams, and those transactions are governed by their own rules — in most states a court order is required to transfer structured settlement payment rights.
The options that actually apply to an annuity are internal: surrender it and pay any remaining surrender charge, exchange it for another annuity under Internal Revenue Code section 1035, annuitize it into an income stream, or leave it alone. Each carries tax consequences that depend on whether the contract is qualified or non-qualified and on your basis, and that analysis belongs with your own tax advisor.
Our pages on how a life settlement compares to an annuity and selling an annuity versus a policy cover the distinction in more depth. If your file contains an annuity and nothing else, the rest of this page does not apply to you.
If It Is Indexed Universal Life: The Three Parameters
An indexed universal life contract does not invest in equities. Premiums net of charges go to the insurer’s general account, the insurer buys options on an index, and interest is credited according to three parameters.
The cap sets the maximum credit for a segment period: an index gain of 20 percent under a 7 percent cap credits 7 percent. The participation rate sets what fraction of index movement is counted before the cap applies. The floor, ordinarily zero percent, means a negative index year credits nothing rather than a loss. Some strategies substitute a spread — a fixed percentage deducted before crediting — in exchange for a higher participation rate.
Two features are rarely emphasized at the point of sale. Crediting is usually tied to the index’s price return, which excludes dividends, so even an uncapped strategy trails the total return most people picture. And the carrier retains discretion over the cap, the participation rate, and the spread on in-force contracts, subject only to the guaranteed minimums written into your policy. Ask for the current figures and the guaranteed minimums side by side. See how indexed universal life works.
The Charges That Do Not Stop in a Zero Year
The most consequential misunderstanding about IUL is that a zero percent floor prevents loss. It does not. The floor protects credited interest, not account value. In a year when the index falls, the policy credits zero and still deducts its monthly charges: cost of insurance, per-policy expense charge, per-thousand charges, and any rider costs. The account value declines.
Cost of insurance is the charge that matters most over time, because it is priced off the insured’s attained age and rises every year. A contract that comfortably absorbed its charges at 58 may not absorb them at 78, and the deterioration accelerates. Our page on how cost of insurance works explains the mechanics and where the guaranteed maximum scale sits.
Add a second reality: universal life contracts contain a guaranteed maximum charge scale and a lower current scale, and the space between them belongs to the insurer. Charges can be raised toward the guaranteed maximum on a class basis. Whether any particular society has done so is a question of fact to ask the carrier directly and verify, not to assume from general industry history.
| Test | Indexed Universal Life | Indexed Annuity |
|---|---|---|
| Who is named | An insured | An annuitant |
| Primary value shown | Death benefit or face amount | Accumulation value |
| Monthly cost of insurance | Yes | No |
| Health questions at application | Yes | Generally none |
| Can it be sold in a life settlement | Possibly, if large enough and assignable | No |
| Main internal options | Reduce face, paid-up, or keep | Surrender, 1035 exchange, or annuitize |
What to Request, and How to Read It
Send one written request referencing the contract number and ask for: an in-force illustration at current charges and the current crediting assumption; a second at guaranteed maximum charges and the guaranteed minimum crediting rate; a third showing the minimum annual premium required to keep the policy in force to age 100 or contract maturity; the policy year in which the contract lapses if no further premium is paid; the current account value, surrender value, and any remaining surrender charge; total premiums paid and your cost basis; any outstanding loan balance and its accrual rate; the current cap, participation rate, and spread on each indexed account together with the contractual guaranteed minimums; and the guaranteed maximum cost-of-insurance scale.
Read two numbers first. The lapse year at current assumptions tells you how much time you have before a decision becomes urgent. The minimum premium to carry the contract to maturity is what a buyer models as the cost of ownership, and it is frequently far below what an owner has been paying — funding at the level originally illustrated rather than the level the contract needs is extremely common.
The gap between the current-assumption and guaranteed-assumption lapse years measures how much discretion the insurer holds over your policy’s survival. Our guide to reading an in-force illustration explains what to look for. Allow two to four weeks for an older contract.
How a Buyer Values an In-Force Indexed Policy
The model is simple. A buyer acquires the contract, funds the minimum premium needed to keep it in force until the insured dies, and collects the net death benefit. Today’s price is the present value of that benefit less the present value of those premiums, discounted at a required rate of return.
Three consequences. Crediting performance is largely irrelevant to a buyer, who is not relying on index credits — only on keeping the contract alive. The optimized premium is often the largest single variable in the price, which is why the minimum-premium figure should be requested before anything else. And the net death benefit, not the face amount, is what a buyer receives: outstanding loans and accrued interest reduce it dollar for dollar.
Age and documented health drive the expected holding period. A settlement review is generally worth doing when the insured is past roughly age 70 with impairments that shorten projected life expectancy, the death benefit is meaningfully above $100,000, and the coverage is no longer needed. See whether an IUL can be sold.
The Fraternal Layer: Assignment and Guaranty Coverage
Because GBU is a fraternal benefit society, a threshold legal question applies that does not arise with stock company policies. A settlement requires the buyer to take ownership of the contract and be recorded as irrevocable beneficiary. Fraternal certificates frequently restrict assignment, condition it on the society’s written consent, or limit who may own the contract.
Ask in writing: will the society accept an absolute assignment of this certificate to an unrelated institutional owner, and will it record a change of ownership and irrevocable beneficiary designation in that owner’s favor? A verbal answer is not usable, because a buyer’s counsel requires documentation. Request a current copy of the society’s articles and bylaws at the same time, since fraternal certificates commonly incorporate them by reference. See what an absolute assignment is.
Separately, state life and health guaranty association statutes generally exclude fraternal benefit societies from coverage, because fraternals are not assessed members of those associations. That is a structural feature of the fraternal form rather than a comment on any society’s financial condition. Ask for written confirmation of the position in your state and check the society’s current financial strength rating. Our page on how guaranty associations work explains the framework.
Pennsylvania’s Inheritance Tax and the Final Decision
GBU is supervised by the Pennsylvania Insurance Department, and Pennsylvania is worth understanding if you live there, because it applies an inheritance tax on the recipient rather than an estate tax on the estate. The rate depends on the relationship: transfers to a surviving spouse are taxed at zero, transfers to lineal descendants such as children and grandchildren at 4.5 percent, transfers to siblings at 12 percent, and transfers to other individuals at 15 percent. Life insurance proceeds paid to a named beneficiary are generally exempt from Pennsylvania inheritance tax, which is one reason keeping a policy in force and keeping the beneficiary designation current can matter more than the death benefit amount alone. Confirm the treatment of your specific situation with your own attorney.
Then decide. Keep it when the coverage is still needed and the minimum premium to maturity is affordable, or when a no-lapse guarantee is intact — confirm the guarantee’s status and required premium in writing, since a late or short payment forfeits it permanently on many designs. Restructure it when the death benefit exceeds what the family needs; reducing the face amount lowers cost-of-insurance charges and the premium required to sustain the contract. Explore a sale only when assignment is confirmed in writing, the death benefit is meaningfully above $100,000, the insured is past roughly age 70 with documented impairments, and the contract is past its two-year contestability period and any applicable state waiting period.
Do not simply stop paying. Lapsing with a loan outstanding can create taxable income above your basis with no cash to pay it, and lapsing without a loan returns nothing. If a lapse notice has arrived, treat it as urgent — see what to do about a lapsing policy. For a read on your own contract, send the cover page for a free review or call (305) 209-7183.
Frequently Asked Questions
How do I tell whether I own indexed life or an indexed annuity?
Look for an insured and a death benefit versus an annuitant and an accumulation value, and check whether the statement deducts a monthly cost of insurance charge. Life insurance has both a death benefit and a mortality charge; an annuity has neither. If health questions were asked at application, it is life insurance.
Can an annuity be sold like a life insurance policy?
No. There is no underwritten death benefit for a buyer to price, so annuities are outside the life settlement market. The realistic options are surrendering it subject to any remaining surrender charge, exchanging it under Internal Revenue Code section 1035, annuitizing it, or leaving it alone. Tax treatment depends on your basis and contract type.
If my policy has a zero percent floor, how can the value fall?
The floor protects credited interest, not account value. In a flat index year the contract credits zero while still deducting cost of insurance, expense charges, and rider costs, so the account value declines. Because cost of insurance rises with attained age, that decline accelerates in later years even without a negative crediting year.
Can the society lower my cap after issue?
Generally yes, down to the guaranteed minimum written into your contract, and participation rates and spreads can be adjusted within contractual limits as well. Ask for the current cap, participation rate, and spread alongside the contractual guaranteed minimums, so you can see how much discretion the insurer holds over future crediting.
Can a fraternal benefit certificate be assigned to a buyer?
Only if the society will accept an absolute assignment to an unrelated institutional owner and record the ownership and irrevocable beneficiary change. Many fraternal contracts restrict or condition assignment. Get that answer in writing before spending time or money on the rest of the process, since a buyer’s counsel requires documentation.
Is a fraternal certificate covered by my state guaranty association?
Usually not. State life and health guaranty association statutes generally exclude fraternal benefit societies, because fraternals are not assessed members of those associations. This is a structural feature of the fraternal form, not a comment on any particular society’s condition. Ask for written confirmation of the position in your state.
Does Pennsylvania tax life insurance paid to my children?
Pennsylvania applies an inheritance tax based on the recipient’s relationship — zero for a spouse, 4.5 percent for lineal descendants, 12 percent for siblings, and 15 percent for others — but life insurance proceeds paid to a named beneficiary are generally exempt. Confirm how the rules apply to your situation with your own attorney.
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Related Reading
- Can I Sell An Indexed Universal Life Policy
- What Is Indexed Universal Life
- Life Settlement Vs Annuity
- Life Settlement Vs Selling An Annuity
- What Is Cost Of Insurance
- What Is An In Force Illustration
- What Is An Absolute Assignment
- State Guaranty Association Insolvency
- Policy Lapsing What To Do
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.