Potential Benefits of IUL
There are some benefits of IUL policy. First, the cash value in these policies has the capability to provide a higher return than that of a traditional universal life insurance policy.
Yet, unlike investing directly in the market, an IUL policy also allows for protection of principal, as the cash value is credited with a 0% during years when the underlying index has produced a negative return.
Because the cash value grows on a tax-deferred basis, the gains on these funds are not taxed unless or until they are withdrawn. This can allow the cash value to grow and compound over time. Using a policy loan, though, the funds in the cash value may be accessed tax-free.
The other benefit of IUL is that the funds accessed from an IUL policy can be used for any number of purposes, such as supplementing retirement income, supporting a child or grandchild’s college education, or paying off high-interest debt.
As with a traditional universal life policy, an indexed universal life insurance policyholder also has lots of flexibility (within certain guidelines) in determining how much of the premium will go into the cash value account, and how much will go towards the death benefit.
Because IUL is a type of permanent life insurance, the protection of the death benefit will remain throughout the insured’s lifetime – provided that the premium is paid. (There may, however, be the option to stop paying premiums, if there is enough in the cash value to fund the ongoing expenses). Having a death benefit that remains in place permanently can provide peace of mind for loved ones.
Also, there are no maximum contribution limits on indexed universal life insurance policies. So, if you have already fully funded your employer-sponsored retirement plan and/or IRA account, this could provide you with a way to contribute additional funds into an account that grows tax-deferred.