Indexed Universal Life Insurance (IULs)
IULs or indexed universal life insurance is a relatively new type of permanent life insurance product. It’s a variation of universal life insurance. Here’s the difference:
Original universal life insurance is a type of permanent life insurance that provides lifelong coverage and includes a cash value that grows over time. You can adjust your premiums and death benefit as your needs change.
The cash value earns interest at a rate set by the insurance company, which is usually modest and may change over time.
Indexed universal life insurance (IUL) is a variation of universal life insurance. It also offers flexible premiums, a death benefit, and a cash value.
But instead of earning a fixed interest rate, the cash value is tied to the growth of a stock market index, like the S&P 500. (Or split between multiple indexes.)
If the market does well, your cash value can grow more. If the market does poorly, your gains might be lower, but most IULs protect you from losing money during years when the market drops.
The trade-off is that there is a cap set on the amount of interest you can earn in the market growth years. This cap depends on the carrier and the plan chosen of course, but it’s usually around 10% – 15%.
When the index growth exceeds the cap, the insurance carrier credits your account up to the cap percent and then keeps the spread as their profit.
Why People Choose IULs For Life Insurance And Retirement
IULs are flexible and have great potential for accumulating cash value. The money put in grows tax-free and is dispersed tax-free.
Because of this, IULs have historically outperformed most retirement plans in terms of growth and money paid out such as 401K’s, 403B’s, Roth IRAs, municipal bonds, etc.
One of the main advantages of an IUL is that you can take monthly withdrawals in the form of a policy loan in your retirement years without the principal account balance that is used to calculate growth and interest being reduced.
Many people utilize this income to supplement their retirement income. As long as at least 10% of the balance is left in the plan to serve as a death benefit, many IUL clients can let the principal grow and only withdraw interest in order to provide an additional income for the rest of their life.
To learn more about how you can benefit from an IUL and to see growth illustrations and examples, choose a day and time for a free consultation here.