Indexed universal life insurance (IUL) is a type of permanent life insurance that offers the potential for growth through an equity index account. This means that your cash value can grow based on the performance of a stock market index, such as the S&P 500. However, there are some risks associated with IULs, so it’s important to understand how they work before you buy one.
How IULs Work
When you purchase an IUL, you’ll choose a base index. This is the index that your cash value will be linked to. The most common base indexes are the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average.
Your cash value will earn interest based on the performance of the base index. However, there are two important caveats:
- Your cash value will never earn less than a guaranteed minimum interest rate.
- Your cash value will never earn more than a guaranteed maximum interest rate.
The guaranteed minimum interest rate is typically around 0%. The guaranteed maximum interest rate can vary, but it’s typically around 8%.
Using Your IUL
There are a few different ways to use your IUL. You can use it to:
- Provide financial protection for your loved ones.
- Build wealth over time.
- Borrow money against the cash value.
If you use your IUL to provide financial protection, the death benefit will be paid out to your beneficiaries when you die. The amount of the death benefit will be based on the premiums you’ve paid and the interest that your cash value has earned.
If you use your IUL to build wealth, you can withdraw money from the cash value or borrow against it. However, you’ll need to pay taxes on any withdrawals or loans that you take out.
Pros and Cons of IULs
IULs have both pros and cons. Some of the pros include:
- The potential for growth through an equity index account.
- The ability to customize your policy to meet your individual needs.
- The flexibility to withdraw money from the cash value or borrow against it.
Some of the cons of IULs include:
- The potential for losses if the stock market declines.
- The complexity of the policies.
- The high fees that some insurers charge.
IULs can be a good option for people who want to provide financial protection for their loved ones and build wealth over time. However, it’s important to understand the risks associated with IULs before you buy one.
If you’re considering an IUL, be sure to shop around and compare policies from different insurers. You should also talk to a financial advisor to make sure that an IUL is the right choice for you.
Here are some additional resources that you may find helpful:
- The Insurance Information Institute: https://www.iii.org/
- The National Association of Insurance Commissioners: https://www.naic.org/
- The Financial Industry Regulatory Authority: https://www.finra.org/
In addition to the information above, here are some other things to keep in mind when using a universal index life insurance policy:
- The amount of interest that your cash value earns will depend on the performance of the base index. If the stock market does well, your cash value will grow. If the stock market does poorly, your cash value may not grow as much or may even decline.
- You can choose to withdraw money from your cash value or borrow against it. However, you’ll need to pay taxes on any withdrawals or loans that you take out.
- The premiums that you pay for an IUL are typically higher than the premiums for a traditional life insurance policy. However, the potential for growth in your cash value may offset the higher premiums.
If you’re considering an IUL, it’s important to talk to a financial advisor to get personalized advice. A financial advisor can help you understand the risks and benefits of IULs and can help you choose the right policy for your needs.
Here are some additional questions that you may want to ask your financial advisor:
- What are the guaranteed minimum and maximum interest rates for the policy?
- How much can I withdraw from my cash value without incurring a penalty?
- What are the fees associated with the policy?
- How will the policy be taxed?
**By understanding how IULs work and by asking the right questions, you can make sure that you’re making the right