Understanding the Cost of Insurance in IUL Policies
Indexed Universal Life (IUL) insurance policies have a unique structure where the premium remains constant, but the internal cost of insurance can increase with age.
Here’s how it works:
- Constant Premium: The premium you pay for an IUL policy is fixed and does not change throughout the life of the policy.
- Increasing Cost of Insurance: Despite a constant premium, the actual cost of insurance within the policy tends to increase as you age. This is because the risk of death increases with age, and insurance companies adjust the costs accordingly.
Impact on Policy Value
- Early Years: In the early years of the policy, the cost of insurance is relatively low. A larger portion of your premium goes towards the cash value component.
- Later Years: As you age, the cost of insurance rises. This means a larger portion of your premium is used for insurance costs, and less goes towards building cash value.
IUL Policy Costs Over Time
|Cost of Insurance
|Impact on Cash Value
|Higher cash value growth
|Balanced growth and insurance cost
|Lower cash value growth
|Minimal cash value growth
In summary, while the premium of an IUL policy remains level, the internal cost of insurance increases with age, affecting the policy’s cash value accumulation. Understanding this dynamic is crucial for policyholders to manage expectations and plan for their financial future. Contact us today for a free quote.
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