What is indexed universal life insurance (IUL), and is it right for me?
That’s a great question and one I’m often asked when selecting the best life insurance policy for my clients. In this blog, I’m breaking down some of the benefits of IUL and how it compares to other life insurance products.
When it comes to life insurance, I work with many clients who want to ensure their affairs are in order in case they should pass away and leave their families with bills and other financial obligations. Unfortunately, because everyone has a different situation, there isn’t one answer that fits everyone.
Indexed Universal Life Insurance Explained
An IUL policy is permanent. This means it lasts your entire life, can accumulate cash value, and provide a death benefit. Like other types of whole life, IUL is sold as an insurance-investment hybrid. The policy allows some cash value growth through an equity index account, unlike other universal policies that only grow cash value through non-equity earned rates. Similar to all universal life policies, once you’ve built up enough cash value, you can use it to lower or potentially fully pay for your premium without reducing your death benefit.
How is Interest Calculated on Indexed Universal Life Insurance?
With an IUL policy, you grow your cash value by putting a portion toward an equity index account like the S&P 500 or NASDAQ. Instead of only relying on non-equity earned rates, an equity index account grows based on the index of an entire market or market sector. IUL cash value can increase based on set grouping of stocks. Remember, the interest rate will still be variable, like other universal life policies. Regardless of market performance, your IUL cash value will have a minimum interest rate that it will always earn. Your IUL may also have an interest rate cap.
Is Indexed Universal Life Insurance Right for Me?
One thing about IUL policies is that they tend to have higher premium costs and potential fees. This could make them more expensive than other types of life insurance. I can help you determine if it’s the best solution for you. You can also talk with a financial advisor who can help you see the bigger picture of adding an IUL policy to your comprehensive financial plan.
What is the Difference Between Indexed Universal Life Insurance and Term Life Insurance?
As the name implies, term life insurance coverage is adequate for a specific length of time—for example, five, 10, 20 years, or longer. The death benefit is only paid if you die during this term. If the term expires, you may be able to renew the policy, although the premiums may increase.
Unlike whole life insurance, term insurance does not build up any cash value. However, some term policies can be renewed or converted into permanent life insurance policies, such as a whole life policy.
What is the Difference Between Indexed Universal Life Insurance and Whole Life Insurance?
Whole life insurance acts similarly to a low-interest investment and provides a payout no matter when you pass away, as long as you’ve paid the premiums.
Unlike term life insurance, where the premium is low and paid over a short period, whole life insurance is paid throughout a policyholder’s lifetime, and premium rates are significantly higher. In addition, when the policyholder dies, the beneficiaries receive a death benefit, provided that the insured made the required payments and abided by the terms of the policy agreement up to the maturity date.
Talk to an Experienced Insurance Agent Today
If you are considering an IUL policy, I would love to sit down with you and discuss how it may be a good option. I know it’s a lot to understand, and it can be tough to determine if you are making the best decision for you and your family.
Key takeaways of an IUL policy:
- The power of indexing to grow funds securely
- Tax-free income through policy loans
- Access to funds with no market-value adjustment
- A legacy for heirs above the account value
Many Americans consider an IUL policy as part of their investment plans, thanks to these benefits. IUL policies offer a package of features not found in other savings vehicles. Contact me today to learn more!