IUL insurance is a form of life insurance that is permanent, which implies that, besides providing a death payment, it also builds cash value. Your insurers may determine the index of stocks used to calculate interest on the funds in your cash balance accounts, like the Nasdaq Composite. Even though interest rates are not fixed, most funds have a bank rate guarantee.
Essential characteristics of IUL insurance
Without a set interest rate
The National Association of Insurance Commissioners (NAIC) notes that when you buy IUL insurance, the money in your cash index bank account doesn’t earn a predetermined return and interest rate. Instead, your interest rate is determined by a stock index set by your insurers. (This is distinct from ULI, which, according to the Insurance Information Corporation, pays interest resembling that of a money-market account.) In the same way, a portfolio of investments, including such bonds or stocks, is tracked by an index based on the Securities Exchange Commission. According to the NAIC, your insurers choose the index and then determine an interest calculation based on that index’s performance. Your cash value account receives credit from the life insurance provider for that interest.
The guaranteed rate of interest
However, the NAIC also notes that the rate of interest guarantees are frequently included in plans, ensuring that a minimal interest rate is maintained even if the index yields lower margins. Nevertheless, there is frequently an “upper cap” or cap on the interest rate.
The American Institute of Certified Public Accountants lists the following additional characteristics of IUL insurance
- Variable premium payments
If your cash balance account seems to have enough cash, you might be able to utilize that money to contribute to the cost of your premium.
- Adjustable funeral advantage
However, with an IUL insurance policy, death payments are usually flexible and may be decreased at any moment. However, you might need a medical test to increase the death benefit.
- Obtaining financial value
Your cash value bank account can also allow you to withdraw the money. But doing this can lead to a permanent reduction in your benefit of death. Withdrawal effects also run the danger of making your policy expire if you don’t have a sufficient amount in your cash value account.
Who might decide to get IUL insurance?
In the same way, if you desire everlasting life insurance and gradually increase your account balance, the III advises considering permanent insurance coverage.
According to the NAIC, IUL insurance provides both the possibility for market-based development and protection against value loss if the market declines.
If you find these aspects desirable, you might want to think about IUL. You may decide if IUL insurance is the best option for you with the advice of your insurance company.
Craig E. Vukich is a 35 year retirement specialist and Financial Advisor who has helped thousands of clients all over the country with their investment portfolios and retirement strategies.
In that time, Craig has also helped seniors and retirees with their Medicare options as healthcare continues to be one of the most confusing issues facing people today.
Personally, Craig lives in Beaver Falls, Pa with his beautiful wife and childhood sweetheart Barb and their lovely daughter Shalyn.
Craig is a graduate of Westminster College which is about an hour north of Pittsburgh. Craig is a recreational golfer and traveler and Pittsburgh sports fanatic.