What is Indexed Universal Life Insurance?
Indexed Universal Life Insurance (IUL) is a form of permanent life insurance that not only offers a death benefit to beneficiaries but also includes a cash value element. This cash value grows based on the performance of a stock market index, such as the S&P 500, allowing the policyholder to participate in market gains without being directly invested in stocks.
The cash value in an IUL policy has the potential to grow over time based on the index’s performance, but with a level of protection against market losses. This is achieved through a “floor,” which ensures that the cash value does not decrease due to market downturns. The growth is capped, meaning there is also a limit on the amount of interest credited, which can vary depending on the terms set by the insurance company.
One of the unique features of IUL policies is the flexibility they offer. Policyholders can adjust their premium payments, increase or decrease the death benefit, and even access the cash value via loans or withdrawals under certain conditions. This can make IUL policies attractive to those who are looking for both life insurance protection and a way to accumulate funds for retirement or other long-term needs.
However, IUL policies can be complex and often come with fees and conditions that impact the potential for growth. It’s essential for individuals considering an IUL policy to understand how the indexing works, the cap and floor on returns, and the potential impacts of policy fees on the cash value. Consulting a financial advisor can be beneficial in determining if this type of insurance aligns with one’s financial goals.