Life Insurance That Does More Than Provide a Death Benefit
Indexed Universal Life (IUL) is a form of permanent life insurance that provides a death benefit while also offering the potential to build cash value over time. Understanding how the policy works—including its costs and limitations—is important before deciding whether it fits your goals.
Schedule an IUL Education SessionWhat Is Indexed Universal Life?
Indexed Universal Life is a type of permanent life insurance. Like other life insurance, it is designed to provide a death benefit to your beneficiaries, subject to the terms of the policy. It also has a cash-value component that can build over time.
After premiums are paid and applicable policy charges are deducted, the insurer may credit interest to the cash value based in part on the performance of an external market index. The policyholder’s money is not directly invested in the index or the stock market.
Every policy has its own terms. Charges, costs, caps, participation rates, crediting methods, and other limitations affect how it works. Coverage can lapse if there is not enough value in the policy to cover its costs.
How Can Cash Value Grow?
With index-linked interest crediting, an insurer uses a policy’s crediting method and the movement of an index over a stated period to determine how much interest, if any, is credited. The policy itself is not directly invested in that index.
A cap may limit the interest credited, a participation rate may determine how much of an index’s change is used, and a spread may reduce the amount used in the calculation. Depending on the policy, these and other terms can affect the result. A positive index performance does not mean the policy receives the full index return.
A floor may help protect against a negative index-crediting result for a crediting period. However, policy charges and costs can still reduce the policy’s value, even when a floor applies. Cash-value growth is not guaranteed.
Why Do Some People Consider an IUL?
Some people consider an IUL as one insurance-based way to address more than one goal. Depending on the policy and their circumstances, those goals may include:
- Permanent life insurance protection
- Long-term cash-value accumulation
- Supplemental retirement-income planning
- Access to available cash value
- Family protection
- Legacy planning
These are potential uses, not guaranteed outcomes. An IUL is not the right fit for everyone. Whether it makes sense depends on your needs, goals, ability to pay premiums, and the specific policy.
Accessing Cash Value
Depending on the policy and the amount available, cash value may potentially be accessed through withdrawals or policy loans. It’s important to understand the effect of taking money out before deciding to do so.
Loans and withdrawals reduce available cash value and death benefits. Interest may apply to policy loans, and excessive loans or withdrawals may cause a policy to lapse. A lapse with outstanding loans may have tax consequences. Withdrawals may also have tax consequences or be subject to charges, depending on the policy and circumstances.
Policy details and tax treatment vary. Review the policy terms carefully and consult a qualified tax professional about your individual situation.
A Conversation About Your Goals
If you’d like to understand how an IUL works and whether it may be worth considering for your family, James at Fountain Legacy Group is here to help you explore the details without pressure.
Schedule an IUL Education Session