IUL vs. Fixed Indexed Annuity

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

What is an Indexed Universal Life (IUL) Insurance?

Indexed Universal Life (IUL) Insurance is a type of permanent life insurance. It offers death benefit protection and includes a cash value component. The growth of the cash value is linked to a stock market index, like the S&P 500, but comes with a guarantee of no loss due to market downturns.

Iul Vs. Annuity

What is a fixed-indexed annuity?

A Fixed Indexed Annuity (FIA) is a type of retirement savings product. It provides potential interest earnings based on changes in a market index, like an IUL, but it also guarantees the principal investment against losses. Unlike IULs, FIAs do not offer life insurance coverage.

Related Reading: Universal Life Insurance Vs. Fixed Index Annuity

Key Differences

  1. Purpose: IULs are primarily life insurance policies with a savings component, while FIAs are retirement income products.
  2. Death Benefit: IULs provide a death benefit. FIAs do not.
  3. Investment Risk: Both offer protection against market downturns, but the structure of their interest earnings varies.
  4. Fees: IULs often have higher fees due to life insurance costs. FIAs may have lower fees but can include surrender charges.
  5. Tax Benefits: IULs offer tax-free death benefits and potential tax-deferred growth. FIAs provide tax-deferred growth.

Examples

  • IUL Example: A person buys an IUL policy with a $500,000 death benefit. Over time, part of their premium goes into the cash value, which grows based on a stock index but does not lose value when the market goes down.
  • FIA Example: An individual invests in an FIA, tying their returns to a market index. Their principal is protected, and they receive interest earnings based on the index performance, subject to caps and floors.
Iul Vs Annuity

Conclusion

Choosing between an IUL and a Fixed Indexed Annuity depends on your financial goals, whether you need life insurance, and your retirement planning strategy. Each has unique features catering to different needs. For personalized advice on which option is best, contact us today for a free quote.

Iul Vs. Annuities

Request A Quote

Get help or a quote from a licensed financial professional. This service is free of charge.

Contact Us
First
Last

Frequently Asked Questions

Can you cash out an IUL policy?

Yes, you can cash out an IUL policy. Most IUL policies offer various withdrawal and loan options allowing you to access your policy’s money without surrendering it. Withdrawals are typically subject to interest charges or fees. Loans may also be available from the insurance company. In addition, many IUL plans allow policyholders to assign their policies to a third party in exchange for a lump-sum payment. This allows policyholders to convert their IUL policy into cash without surrendering it. However, if you cancel your IUL policy, you will no longer be able to access the tax-deferred growth potential of the policy, and any money taken from the policy before maturity is subject to taxes and penalties.

Can I turn an IUL policy into an annuity?

Yes, it is possible to convert an IUL policy into an annuity. The conversion process involves surrendering the IUL policy for a lump sum payment or an income stream (annuity). In most cases, you must be at least 59 1/2 years of age, and the contract must have been in force for at least ten years. After the conversion has been completed, you will no longer be able to access the tax-deferred growth potential of the IUL policy. Therefore, it is essential to consider your options carefully before deciding to convert an IUL policy into an annuity.

Can I turn my annuity into an IUL?

Yes, you can turn an annuity into an IUL. This process is known as a 1035 exchange. A 1035 exchange allows you to transfer money from one type of investment to another without tax consequences. To complete the exchange, you must first surrender your annuity and request that the proceeds be used to purchase an IUL policy. It is important to note that 1035 exchanges are subject to certain limitations and restrictions, so it is essential to consult a qualified financial professional before making any decisions.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

Scroll to Top