What is Indexed Universal Life Insurance?
Indexed Universal Life (IUL) Insurance offers cash value build-up based on changes in stock market indices. It's less risky than Variable Universal Life Insurance. Your increased cash value is generally protected from downside risk, subject to floors.
Reasons to consider universal life insurance
Is an Indexed universal life insurance policy right for you?
Low risk is probably the most attractive part of getting an IUL. You can take advantage of stock market returns without too much stress about the risk of loss. Additionally, you can accumulate more in your death benefit which your beneficiaries will receive tax-free after you pass.
Benefits of an IUL are:
- No contribution limits, unlike other retirement plans.
- Like a Roth IRA, IULs offer tax free growth and distributions.
- IULs do not have age restrictions. Other retirement plans require you to be 59.5 years old before you can start taking distributions. However, this does not exist with an IUL.
- Death benefits that are given to beneficiaries are not subject to income or death taxes.
- You can take a loan from your cash value penalty, and tax-free. The money you take out does not have to be repaid.
Indexed universal life insurance
A type of permanent life insurance, indexed universal life, offers both a death benefit and a cash account. The amount of the death benefit is decided at the start of the policy but can change. The amount in the cash account increases based on the way the stock index is doing.
The S&P 500 and Dow Jones Industrial Average are stock market indices. They are a way to track a group of stocks. Insurance companies choose at least one of these and distribute interest to policyholders based on how their indexes are doing — if the value increases, the account earns positive interest. If the index lowers, the account earns less or possibly nothing.
Universal Life Insurance Premiums
Your premium payments are the main source of funds for your cash account. Your premium payments also cover the cost of insurance (death benefit), rider charges, and any other fees associated with your policy. Then, the remaining amount from your premium will be added to your cash account. If you miss a payment or don’t pay enough for your premium, the company will take those fees from your cash account.
To minimize large changes in interest payments, the amount of money you can earn is subject to “floors” and “caps.” The floor is the lowest your account rate can fall, which is often set at 0%.
On the other hand, caps are the highest interest rate that your cash-value account can earn. If the market increases more than your cap, you’ll only earn the cap amount. Your insurer can change the cap while your policy is active.
Consult with the National Educational Services life insurance agent to learn what type of policy best fits your individual needs.
Get a Universal Life Insurance quote
Frequently asked questions
Life insurance can be confusing. Find answers to the most frequently asked questions.
Index changes can be positive or negative. However, with the IUL, you have the security of knowing you will never be credited less than the guaranteed minimum interest rate, or "floor." The floor can protect your cash value and helps ensure that segments with a positive value will be credited with interest.