Indexed universal life (IUL) insurance can help you build wealth while providing a death benefit for your loved ones. These policies put a portion of the policyholder’s premium payments toward annual renewable term life insurance, with the remainder added to the cash value of the policy after fees are deducted. On a monthly or annual basis, the cash value is credited with interest based on increases in an equity index.
IUL insurance policies provide greater upside potential and flexibility as a life insurance policy. They also offer tax free gains. These policies are best for those with a large up front investment and who are seeking options for a tax free retirement.
FAQ's
What is Indexed Universal Life Insurance (IUL)?
Indexed Universal Life Insurance (IUL) is a type of permanent life insurance policy that offers both a death benefit for beneficiaries and a cash value component that can grow over time. What sets IUL apart from other types of life insurance is its investment component, which allows policyholders to allocate a portion of their premiums into indexed accounts tied to stock market indexes, such as the S&P 500. The policy’s cash value can then potentially grow based on the performance of these indexes, providing policyholders with the opportunity for greater returns compared to traditional whole life insurance policies.
How does the cash value in an Indexed Universal Life Insurance policy grow?
The cash value in an IUL policy has the potential for growth through participation in indexed accounts. Insurance companies typically offer a variety of index options for policyholders to choose from. The growth is linked to the performance of the chosen index. If the index experiences positive returns, the cash value of the policy will typically increase, subject to a cap or participation rate set by the insurance company. However, if the index performs poorly or experiences negative returns, the policy’s cash value may not grow, but it typically won’t decline below a certain floor specified in the policy, providing some downside protection.
What are the key benefits of Indexed Universal Life Insurance?
Indexed Universal Life Insurance offers several benefits:
- Flexibility: Policyholders can adjust their premium payments and death benefit amount within certain limits, providing flexibility to adapt to changing financial needs.
- Cash Value Growth: The potential for cash value growth through indexed accounts can offer an opportunity for higher returns compared to traditional whole life policies.
- Tax Advantages: The cash value growth in an IUL policy is generally tax-deferred, meaning you won’t owe taxes on the gains until you withdraw them.
- Death Benefit: IUL provides a tax-free death benefit to beneficiaries, ensuring financial security for loved ones.
- Asset Protection: In some cases, the cash value in an IUL policy may be protected from creditors, providing an added layer of financial security.
