Indexed Universal Life
A universal life insurance policy is a form of permanent life insurance that provides the policyholder with low-cost protection and a savings element, also known as a cash value. An indexed universal life (IUL) insurance policy allows the policyholder to decide on how much cash value can go towards an equity-indexed account or a fixed account. Common indexes include the S&P 500 or NASDAQ-100.
Now, this may sound confusing to some, but fortunately, Seeds Financial Planning is here to make sure you have a complete understanding of your life insurance options! So, before we get into the benefits of an IUL, let’s take a look at how these policies actually work.
How Do IUL’s Work?
When you pay your premiums for this policy, a part of it will go towards your policy while the rest will be added to your cash value. This cash value will be credited with interest that is based on an equity index.
Many policies will allow their policyholders to choose multiple indexes. IULs will give the policyholder a selection of indexes to choose from, as well as provide a guaranteed minimum fixed interest rate.
The value of the index you selected will be noted at the beginning of the month, then it will be compared to the value it has by the end of the month. If there is an increase, the interest will be added to your cash value.
What Makes IUL’s Great?
One of the biggest advantages of owning permanent life insurance is the ability to build cash value that you can access when you need it. Every policy owner has the right to borrow money from the insurance company by using his or her policy cash surrender value as collateral for the loan, there is no condition on being able to borrow money from the insurance company.
The primary reason you purchased life insurance is for the death benefit protection, but it can also be used to protect you, your family and your business while you are living.
One of the best benefits of an IUL is the fact that cash will grow tax-deferred, while the death benefit is still maintained. Not only this, but the cash value of the policy can be used to pay the premiums of the policy, and you have the flexibility of adjusting the death benefit.
Other great benefits of an IUL include:
- Low premiums
- Less risky because the policy won’t be directly invested into the stock market
- Cash value can be accessed at any time
Overall, an IUL is a great savings vehicle, especially when it comes to savings and avoiding taxes during your retirement.