Indexed Universal Life Insurance (IUL) Accounts
The cash value that accumulates within an Indexed Universal life insurance policy can be referred to as the cash value account. This portion of the policy allows the policyholder to receive growth on their IUL investment and therefore, also, provides the ability of the policyholder to withdrawal this money in the future through tax-free loans to fund their retirement income needs. The cash value account is an additional component that makes the IUL products different from many other types of life insurance policies.
As the cash value grows, there are no taxes paid, and that is why so many people have flocked to IUL products over the past several years. The potential tax advantages that come with having an IUL policy have been one of the major selling points and a reason why IUL sales have increased to nearly $2 Billion per year. Apart from any cash value accumulation and the potential for tax-free cash flow in retirement, a policyholder’s loved-ones are also protected through a tax-free death benefit.
How an IUL Account Works
Having an IUL accounts guarantees the security of the amount invested in the IUL and the opportunity for growth. An IUL account allows you to earn interest on your premium payments. The policyholders are protected from market losses while the IUL account receives a return dictated by the index(es) the policy is linked to.
Growth in the IUL account is locked in at the end of a period, and this means market losses cannot bring down the policy’s cash value. For instance, a client’s cash value account can be credited with 7% during one term, should the index rise and then the next period receives the IUL account is guaranteed with a floor of 0%, avoiding any losses, should the index decline substantially.
IUL Policyholders can enjoy peace of mind and financial security as their IUIL investment is secure, avoiding losses due to market declines. The growth of a policy is determined by the IUL crediting rate which gives the owner the IUL greater potential returns vs. whole life policies. – Whole life policies, on the other hand, offer a declared dividend rate which is often less than the potential growth of the IUL accounts.
The IUL account offers policyholders the opportunity to participate when the index rises. Although the IUL account can be linked to the stock market, a primary difference between the two is that a portion of the IUL premium goes to the cash value account and therefore can grow, while another part is applied to cover the cost of insurance. Policyholders should not expect stock-market-like returns, but the protections afforded by this type of policy can make that small sacrifice well worth it.
It is always a good idea when considering whether or not an IUL policy is right for you, to work with a highly trained financial advisor who specializes in index life insurance policies. Understanding how the investment component of an IUL policy functions is difficult and the number of choices that exist makes it imperative that you work with the most knowledgeable professional you can find. IUL contracts can sometimes be confusing to most people, even many professionals, do not fully understand how the premium payments can be converted into capital and what to look for in the small print of a policy.
In summary, an IUL account is a cash value account for earning interest on the premium payments made to your IUL investment. Policyholders can receive tax-deferred growth during the cash accumulation phase while keeping their IUL investment safe from market declines.