Courtney Anderson EA Tax
Courtney Anderson EA Tax
Financially Conscious. Health Conscious. Earth Conscious.

WHAT YOU NEED TO KNOW ABOUT INDEXED UNIVERSAL LIFE INSURANCE (IUL)

Courtney
07.29.21 03:08 PM Comment(s)

WHAT YOU NEED TO KNOW ABOUT INDEXED UNIVERSAL LIFE INSURANCE (IUL)

Many people nowadays are considering the benefits of permanent life insurance because of it's capacity to give long-term protection as well as financial value. As a result, indexed universal life (IUL) has become a popular choice in providing permanent life insurance coverage with even more growth potential through indexing of interest credit. 

WHAT IS INDEXED UNIVERSAL LIFE (IUL) INSURANCE?

IUL (indexed universal life) insurance policies help you develop wealth, while also providing death benefits to your loved ones. These plans devote a portion of the policyholder's premium payments to yearly renewable term life insurance, with the balance adding to the policy's cash value after fees are deducted. 

The cash value is credited with interest depending on gains in an equity index on a monthly or annual basis. While IUL insurance may be beneficial to certain people, it's important to understand how it works before buying one.

HOW DOES IT WORK?

The premium payments you make to your IUL policy, like other forms of permanent life insurance, can also generate interest and build the cash value of your policy. What sets IUL apart is the method through which interest is credited to your policy. In addition to a standard announced interest rate, IUL offers the option of earning interest based on the performance of a selected group of market indexes.

When the linked index performs well, your cash value grows quicker, allowing you to make more money and grow your cash value. If the index does poorly, on the other hand, your cash worth will grow at a lesser rate. The money credited to your IUL's cash value grows tax-free and may be used to pay insurance premiums, giving you the freedom to reduce or even cease paying out-of-pocket premiums as long as the minimum monthly payment is made.


ADVANTAGES OF INDEXED UNIVERSAL LIFE INSURANCE


FLEXIBILITY

The amount risked in indexed accounts is at the policyholder's discretion, and the death benefit amounts can be changed as needed. 3 Most IUL plans have a variety of optional riders, such as death benefit and no-lapse assurances.


LOW PRICE

As the policyholder you bear the risk, so the premiums are minimal.


Death Benefits

This benefit is indefinite, not subject to income or death taxes, and does not need probate.


CASH VALUE ACCUMULATION

Amounts attributed to the cash value grow tax-deferred. The cash value of the policy can be used to pay insurance premiums, allowing the policyholder to minimize or eliminate out-of-pocket expenditures.


EASIER DISTRIBUTION

IUL insurance policies provide cash value that can be obtained at any moment without penalty, regardless of age.


DISADVANTAGES OF INDEXED UNIVERSAL LIFE INSURANCE


CAPS ON ACCUMULATION PERCENTAGES

Insurance companies frequently establish a maximum participation rate of less than 100%.


BETTER FOR LARGER FACE AMOUNT

Smaller face values don't give much of a benefit over standard UL plans.


BASED ON AN EQUITY INDEX

If the index falls, the cash value does not get any interest, (some policies provide a low fixed rate for a longer length of time). Market indexes serve as a performance benchmark for investment instruments. Typically, their objective is to outperform the index. The objective of IUL is to benefit from rising index fluctuations.

IUL insurance policies, while not for everyone, but are a realistic choice for those who want the security of a fixed universal life policy with the interest-earning potential of a variable policy.

REFERENCES

  1. https://www.investopedia.com/articles/personal-finance/012416/pros-and-cons-indexed-universal-life-insurance.asp

  2. https://www.forbes.com/advisor/life-insurance/universal-life-insurance/

  3. https://www.protective.com/learn/what-is-indexed-universal-life-insurance

  4. https://www.coverage.com/insurance/life/indexed-universal-life-insurance/

  5. https://www.guardianlife.com/life-insurance/indexed-universal

 



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