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IUL Policy Guide
Get a comprehensive guide to Indexed Universal Life (IUL) policies. Understand features, benefits, and how to select the right IUL policy for your needs.IUL Tax Benefits
Tax-Free Withdrawals
Most “traditional” retirement savings plans allow for pre-tax contributions and tax-deferred growth. So, upon withdrawal, 100% of the funds you access in retirement may be fully taxable – at a future rate that is currently unknown. Tax-free withdrawals are allowed from certain types of accounts, such as Roth IRAs and 401(k)s, and via some types of life insurance policy loans. IUL (indexed universal life) policies fall into this category. IUL Policy loans can provide you with more net spendable income in retirement to use for the goods and services you need (and want) to purchase.
Protect Your Family
If the unexpected happens, it could leave your loved ones struggling financially with debt(s) to pay off, as well as everyday living expenses like housing, transportation, utilities, and food. An indexed universal life (IUL) policy can provide your survivors with an income tax-free death benefit that can allow them to carry on without worrying about drastic changes to their lifestyle. These policies can also provide you with a way to access funds tax-free in retirement cash flow through policy loans.
Unlimited Contributions
Employer-sponsored plans and individual retirement accounts (IRAs) generally mandate a maximum annual contribution limit. This can reduce the amount of tax-advantaged savings that you have. But permanent life insurance like IUL (indexed universal life) can provide you with a way to make unlimited contributions into an account that grows on a tax-deferred basis – and that you could also access tax-free in the future – even if you have already “maxed out” the contribution limit on these other types of plans.
Tax-Deferred Growth
Indexed universal life (IUL) insurance allows the cash account to grow on a tax-deferred basis. This means that there is no tax due on the gain until the time of withdrawal, providing the ability to compound exponentially over time – especially compared to a taxable account, with all other factors being equal. If other tax-deferred accounts – such as traditional IRAs and 401(k) plans – have reached their annual maximum contribution limits, an IUL policy can provide you with a way to continue expanding your tax-advantaged retirement savings.
Lifetime Coverage
As with other permanent life insurance policies, IUL (indexed universal life) insurance provides coverage for the insured’s life. This means that as long as the premium is paid (in turn, keeping the policy in force), an income-tax-free death benefit will be paid to the named beneficiary(ies). This is the case, even if the insured contracts an adverse health condition in the future.
Principal Guarantees
Permanent life insurance policies like IUL (indexed universal life) provide several types of guarantees. The cash value will be credited with a guaranteed minimum floor amount – even if the index(es) being tracked incur a loss in a given contract period. These policies also guarantee that a death benefit will be paid to one or more named beneficiaries if the insured dies while the IUL policy is in force.
Flexibility
Indexed universal life (IUL) insurance policies provide flexibility concerning how the cash value return is credited. In addition, as with regular universal life (UL) insurance, IUL policyholders may decide (within certain guidelines) how much of the premium will go towards the death benefit and how much will go towards the cash value component.
No Impact on Social Security Benefits
In some cases – such as generating too much income from other sources – Social Security retirement benefits may be taxable. Neither the growth on an IUL (indexed universal life) policy nor the funds that are accessed via a tax-free loan count against these income thresholds and, in turn, have no impact on Social Security benefits.
Death Benefit
The death benefit on an IUL (indexed universal life) insurance policy is the amount that is paid out to the named beneficiary (or beneficiaries) if the insured dies while the policy is in force. These funds are typically received free of income tax. Other names for death benefit are face amount and policy proceeds.
Higher Potential Returns
The cash value of an indexed universal life (IUL) insurance policy offers higher potential returns than other permanent plans like whole life and regular universal life insurance – but without the risk of loss, even if the underlying index (or indexes) being tracked incur a significant decline in a given contract period. IUL differs from variable universal life (VUL) in that VUL provides the opportunity for higher total returns but also has the risk of loss if the investments perform poorly.
Recent IUL Articles & News
Is Indexed Universal Life Insurance Right For You?
Indexed universal life, or IUL, is a type of life insurance policy that provides both a death benefit and a cash value component. The funds that are within the policy’s cash value differ from those in a whole life insurance policy, or even from a regular universal life insurance policy because the return with an IUL policy is tracked based on the performance of an underlying market index. One of the more popular index options is the S&P 500. (The policyholder may also be able to choose more than one index to track, depending on the insurance carrier and the policy).
When the underlying index performs well in a given year, then the cash value is credited with a positive return – usually up to a “cap” that is set by the insurance company. If, however, the underlying index performs poorly in a given year, the policyholder will not lose value in the account, but will simply be credited with a 0% for that period. There is also an option to place the policy’s cash value funds into a fixed account. Read More
IUL Explained
Indexed universal life, or IUL, is a type of life insurance policy that provides both a death benefit and a cash value component.
IUL Policies
An indexed universal life policy is a type of insurance that allows the policy holder the opportunity to increase the policy’s cash value based on the return on an underlying market index.
Is Indexed Universal Life Insurance Pros and Cons
While many life insurance policies can provide you with death benefit protection, and some even provide a cash value build-up, indexed universal life insurance (IUL) is unique in that it gives you market-linked growth, as well as protection of principal. These benefits come with drawbacks, however, such as the cost of life insurance and ‘Caps’ impacting the potential growth of the policy when compared to investing directly in the Stock market. You must also be healthy enough to qualify for life insurance, meaning not everyone will be eligible.
Benefits of IUL
- Death benefit protection
- Market-linked growth
- Protection of principal
- Tax-deferred
- Potential tax-free withdrawals
Disadvantages of IUL
- Cost of life insurance
- Caps
- Participation rates
- Eligibility questions
- Long-term Instrument
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11/02/2019