A Guide To Indexed Universal Life Insurance.

Shawn Plummer

CEO, The Annuity Expert

Indexed universal life insurance is a type of permanent life insurance policy offering several features and benefits that are not available with other types of insurance policies. It is designed to provide you with long-term financial protection and can also be used to save for retirement. In this guide, we will discuss the basics of indexed universal life insurance, including how it works and what its benefits are.

What is Index Universal Life Insurance?

Indexed universal life insurance is a type of permanent life insurance that allows policyholders to accumulate cash value. Your policy’s cash value is based on the performance of one or more stock market indexes, such as the S&P 500 Index. When the stock market index goes up, so does your policy’s cash value. However, when the stock market index goes down, your policy’s cash value will not go down.

Some life insurance policies are split into two parts:

  • A death benefit that pays money to someone when you die.
  • The cash value can grow over time.

With Universal Life insurance policies, you can change the amount of money paid out when you die and use any gains from your cash value to pay for your premium.

The Benefits Of IUL

One of the main benefits of indexed universal life insurance is that it offers the potential for higher cash value growth than other types of life insurance policies. This is because you can participate in the stock market’s upside potential without worrying about the downside risk.

Another benefit of indexed universal life insurance is that it allows you to adjust your premium payments and death benefit amount. This means you can customize your policy to fit your unique needs and goals.

What makes Index Universal Life Insurance unique?

Some of the other benefits of indexed universal life insurance include the following:

  • Indexed universal life insurance policies offer death benefit protection that is tax-free.
  • Your policy’s cash value grows tax-deferred, which means you will not have to pay taxes on it until you withdraw the money.
  • You can use your policy’s cash value for various purposes, including supplementing your retirement income, paying for long-term care expenses, or funding a child’s education.
  • Indexed universal life insurance policies offer the potential for higher cash value growth than other types of life insurance policies. This is because you can participate in the stock market’s upside potential without worrying about the downside risk.
  • Indexed universal life insurance policies provide you with the flexibility to adjust your premium payments and death benefit amount. This means you can customize your policy to fit your unique needs and goals.

Indexed life insurance (IUL) differs from other life insurance because the interest rates can change. This is because they are not set but based on an index chosen by the insurance company. Interest is earned based on the performance of that index.

What’s an index?

An index is a group of investments like stocks or bonds. The S&P 500 and the Nasdaq 100 are examples of indexes. For example, the insurance company doesn’t invest in the market but uses an index to set the interest rate for your policy.

Cash Value

Index universal life insurance has a cash value that you can use. You get to decide how you want to use it. There is a chance that you can make a lot of money with an indexed universal life insurance policy. But you need to track the cash value performance and if it is possible to access those funds. You can buy a traditional life insurance policy instead of an IUL. This way, you have extra money to invest in other things.

Index Universal Life Insurance Pros

Most people don’t need life insurance for their whole life. But some people might need it to pay off debts, and others might want to pass on the family’s wealth without paying taxes. Permanent policies can be good. If you have enough money, an IUL policy can also help you do these things.

You can grow your cash value more quickly if you buy an IUL, and the amount of risk is less. If the market falls, you won’t lose money. You can also change how much death benefit coverage you want when needed.

Other indexed universal life insurance advantages include:

  • Similar to an IRA, your policy grows tax-deferred.
  • Like a ROTH IRA, you can pull money out of your policy without paying taxes.
  • Unlike qualified accounts such as 401(k) and IRAs, you can access the policy cash values pre-59.5 without incurring taxes or penalties.
  • Unlike a 401(k) and Traditional IRA, you can access the policy cash values without increasing your Social Security tax or Medicare premiums.
  • Your policy grows based on the performance of the S&P 500, subject to a floor and a cap.
  • Your beneficiary receives the death benefit income tax-free.

Indexed Universal Life Insurance Cons

There are many different kinds of life insurance. IUL is one type. It is more expensive and complicated to understand than other types of life insurance. Why? The index and cash value are complicated, so you must be careful when choosing an IUL policy.

Your cash value may come with fees, and these can increase. In addition, you will have restrictions on how much you can withdraw, and there will be taxes if you take out more than what you put in.

The Different Types Of Indexed Universal Life Insurance

There are two types of indexed universal life insurance: participation and non-participation.

  • Participation policies allow you to participate in the stock market’s upside potential, but you will not be subject to downside risk. As a result, your cash value will fluctuate with the stock market, but it will never go below the guaranteed minimum interest rate.
  • Non-participation policies do not allow you to participate in the stock market’s upside potential, but they offer a higher guaranteed minimum interest rate. As a result, your cash value will grow slower, but it will be more stable than a participation policy.

What Is Accumulation Indexed Universal Life Insurance?

Accumulation-indexed universal life insurance is a type of indexed universal life insurance that offers the potential for cash value growth. Your policy’s cash value will grow based on the performance of a selected index, such as the S&P 500. However, you will not be subject to the downside risk of the stock market, which means that your cash value will never go below the guaranteed minimum interest rate.

Accumulation-indexed universal life insurance policies allow you to participate in the stock market’s upside potential without worrying about the downside risk. This makes them an attractive option for people looking for a life insurance policy that offers long-term financial protection and the potential for cash value growth.

What Is Protection Indexed Universal Life Insurance?

Protection indexed universal life insurance is a type of indexed universal life insurance that offers death benefit protection. Your policy’s death benefit will grow based on the performance of a selected index, such as the S&P 500. However, you will not be subject to the downside risk of the stock market, which means that your death benefit will never go below the guaranteed minimum amount.

Protection-indexed universal life insurance policies allow you to participate in the stock market’s upside potential without worrying about the downside risk. This makes them an attractive option for people looking for a life insurance policy that offers long-term financial protection.

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Conclusion

If you are looking for a life insurance policy with the potential for higher cash value growth, indexed universal life insurance may be the right option. This policy allows you to participate in the stock market’s upside potential without worrying about the downside risk. It also allows you to adjust your premium payments and death benefit amount. Contact us today for a quote on this and other life insurance policies. We would be happy to help you find the right coverage for you.

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What is the best indexed universal life insurance?

Prudential, John Hancock, and Nationwide are the best indexed universal life insurance plans. Due to low premiums and A+ financial ratings from A.M. Best, these companies are considered some of the finest indexed universal life insurance policies.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

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

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