Many people see life insurance as a simple, straightforward protection policy that pays out a sum to beneficiaries upon the death of the policyholder. At
its most basic, this view is correct. However, life insurance can also be a far more dynamic product than other types of loss insurance.
One such variation is Indexed Universal Life Insurance (IUL). IUL policies have the most potential to grow because they tie the cash value amount to a
financial index, such as the Standard & Poor’s 500 index.
How does IUL work?
When a premium is paid, a portion covers the cost of the insurance, while another portion covers the fees associated with the policy. The remainder is
added to the cash value balance, where it can accrue tax-deferred interest at the rate of the designated financial index. It’s important to note that the
money is not directly invested in financial markets; it is just tied to the return rate of a specific financial index.
What is the rate of return?
IULs usually offer a guaranteed minimum rate of return and a choice of indexes. Some policies allow you to choose more than a single index, as well as
decide the percentage allocated to the fixed and indexed accounts. Policies can credit the interest in different ways. Some measure index rates monthly,
others do so on an annual basis, and others determine the index’s monthly average over the past year.
Why should I choose an IUL?
The appeal of an IUL is that it provides an opportunity for greater accumulation potential than traditional universal life insurance, while also providing
a built-in floor to ensure the cash value will not decrease during a downturn in the market. Even if the index dips, you’re still safe with a guaranteed
minimum interest rate. When the insured dies, the earnings are dispensed tax free to survivors.
Thanks for reading. Want to learn more? Contact David Miller.