Why do some whole life insurance plans have a Minimum Required Fixed Interest Strategy Allocation (MRFISA)?

Question

Some whole life insurance plans have a Minimum Required Fixed Interest Strategy Allocation (MRFISA), which is defined as follows:

Minimum Required Fixed Interest Strategy Allocation (MRFISA): A dollar amount equal to the estimated Monthly Deductions for a 12 month period, assuming no changes to the policy during that policy year. This amount is determined each year and until this requirement is met, no value will be allocated into an Indexed Interest Strategy.

MRFISA amount will go toward Fixed Interest Strategies instead of Indexed Interest Strategies.

Why do some whole life insurance plans have a Minimum Required Fixed Interest Strategy Allocation (MRFISA)?

Answer 1

Why do some whole life insurance plans have a Minimum Required Fixed Interest Strategy Allocation (MRFISA)?

Whole life policies are by definition complex. They function as both an insurance policy, and as investment vehicle. That monthly or annual premium has to cover the two different functions. That means the company has to create all these micro fees to shape the premiums to try and meet those two goals.

This is another example why the general advice is to avoid whole life and other similar policies, the marriage of insurance policy and investment vehicle is very difficult to understand. The general advice is to buy a term policy based on what you need and re-evaluate every few years or when there is a big life event. Separately save for the future based on you needs, and re-evaluate every few years or when there is a big life event.

Answer 2

It's supposedly a low-risk investment option to cover policy charges.

Per Nationwide:

The estimated amount of policy charges for the coming year (called the minimum required fixed interest strategy allocation, or MRFISA) is automatically held in the fixed interest strategy. Policy charges are deducted from the MRFISA amount within the fixed interest strategy on a monthly basis throughout the year.

Any policy value above the MRFISA amount is allocated between the fixed and indexed interest strategies per your instructions. Funds are transferred on the 15th of each month and cannot be transferred again until the segment matures in one year.