Why Indexed Universal Life?
Universal life insurance is a flexible and permanent life insurance policy that combines a death benefit with a savings component, allowing policyholders to adjust premium payments and accumulate cash value over time.
Indexed Universal Life (IUL) insurance is a type of permanent life insurance that combines elements of traditional universal life insurance with the potential for cash value growth linked to the performance of a stock market index, such as the S&P 500. Here are some key features of Indexed Universal Life insurance:
1. **Death Benefit:** Like other types of life insurance, IUL provides a death benefit that is paid to the beneficiaries upon the death of the policyholder.
2. **Premiums and Flexibility:** Policyholders pay premiums, and a portion of these premiums goes towards the cost of insurance, while the rest is allocated to a cash value account. Policyholders have flexibility in determining the amount and frequency of premium payments within certain limits.
3. **Cash Value Growth:** The cash value in an IUL policy has the potential to grow over time. The interest credited to the cash value is often linked to the performance of a stock market index, with a floor (minimum interest rate) and a cap (maximum interest rate). This structure provides a balance between potential for growth and downside protection.
4. **Indexed Interest:** The interest credited to the cash value is tied to the performance of the chosen stock market index. If the index performs well, the cash value increases. If it performs poorly, there is usually a minimum guaranteed interest rate to prevent loss of cash value.
5. **Policy Loans and Withdrawals:** Policyholders may have the option to take out loans against the cash value or make withdrawals, providing a source of funds during their lifetime. However, loans may affect the death benefit and could incur interest.
6. **Flexibility in Death Benefit and Premiums:** IUL policies often allow policyholders to adjust the death benefit and premium payments within certain limits, providing flexibility to adapt to changing financial needs.
Indexed Universal Life insurance can be appealing to those looking for life insurance with the potential for cash value growth linked to market performance while still having some downside protection. However, it's important for policyholders to carefully review the terms, fees, and limitations of the policy and understand how the indexing mechanism works before deciding if it's the right fit for their financial goals. Consulting with a financial advisor is advisable when considering complex insurance products like IUL.
