1. Simple Interest: Interest earned on invested principal over multiple periods of time that does not take into account the interest earned in earlier periods. In other words, interest is only paid on principal, not on any interest earned on that principal.
2. Compound Interest: Interest earned on invested principal over multiple periods of time that does account for the interest earned on the principal in earlier periods. Interest is earned on interest plus principal when compound interest is used. It is this “compounding” of principal and interest that creates huge long-term accumulation.
A popular way to demonstrate the power of compound interest is to ask the question...
“What would you rather have, $1,000,000 or a penny doubled every day for 30 days?”
Most people choose one million dollars. However, taking a penny doubled every day for 30 days is far and away the winner. IUL is a compounding interest earning MACHINE!