Indexed Universal Life (IUL) insurance is an insurance policy that lasts permanently for the rest of your life and helps you generate cash value. In contrast to other universal policies that only generate cash value through non-equity earning rates, IUL insurance gives some cash value growth through an equity index account. Once you have made enough cash value, you can use it to reduce or pay your premium without impacting your death benefit, as you can with any universal life policy.
How does IUL policy work?
Indexed Universal Life (IUL) insurance is permanent life insurance that functions similarly to universal life insurance except for the method cash value is built. Instead of relying solely on non-equity earned rates, IUL cash value provides for growth based on a stock index (a predetermined grouping of several equities). IUL allows you to manage your premium as your cash value grows, with the possibility of eventually achieving a zero-cost policy in which your built-up cash value pays for all premiums. IUL policies enable you to invest a fraction of your cash value in an equity index account, such as the S&P 500 or the NASDAQ. An equity index account grows based on a market or market sector index rather than non-equity earning rates. Like other universal life insurance, the interest rate will be variable. Your IUL cash value, like all universal life plans, will have a guaranteed minimum interest rate, regardless of market performance. An interest rate cap may be included in your IUL.
Potential Benefits of an Indexed Universal Life insurance policy
Indexed Universal Life insurance is grabbing attention among people looking for life insurance protection policies for little investment. Here is the list of advantages that IULs offer:
Cash Value Growth
The most notable benefit of IUL insurance is the potential for cash value growth, which can be much greater than many other financial products, such as typical universal life or whole life insurance policies.
The cash value grows tax-deferred, and recipients receive a tax-free death benefit. In many circumstances, loans paid against the policy are also tax-free. Because premiums are paid with after-tax monies, withdrawals (up to the number of premiums paid) are also tax-free.
IUL insurance can provide flexibility when creating a policy to meet your investment goals. Policyholders can choose how much risk they want to take in the market, alter death benefit amounts as needed, and choose from various riders to tailor the policy to their unique needs. For example, you may include a long-term care rider to cover nursing facility payments if they arise.