If you are shopping for life insurance, there are many different products on the market. Most people only consider term or whole life insurance, but other products provide greater benefits. One of these is Indexed Universal Life Insurance. Precisely what is this policy that offers so much more than insurance? Here are a few reasons to consider adding one of these policies to your portfolio.
What Is Indexed Universal Life?
Indexed Universal Life (IUL) are insurance policies with two components. The first component is permanent life insurance which provides a death benefit for your beneficiaries. The second component of the policy adds a portion of your premium payments towards your policy's cash value minus any administrative fees. This policy builds cash value based on increases in an equity index.
What Are The Advantages of Indexed Universal Life?
One of the most significant allures of IULs is growing your cash value by investing in an equity index account such as the S&P 500 or NASDAQ. This investment increases your cash value based on the returns of the entire market or market sector. Because the policy is not directly invested in the stock market, there is less risk.
While this is a variable interest rate, there is a minimum guaranteed rate your policy earns no matter how the market performs. Unfortunately, most policies also have an interest rate cap.
Indexed Universal Life policies offer lots of flexibility. Here are a few:
- There are no limits on your annual contributions.
- There are no age limits on taking distributions, or borrowing, from your IUL policy.
- You control the amount of your cash value risked in your indexed account.
- You can adjust your death benefit as you see fit.
- You can choose numerous riders, including no-lapse guarantees.
- You can change your premium payments as needed.
In addition, your cash value can also make future payments, maintaining your policy without you having to pay out of pocket.
What Are The Disadvantages Of Indexed Universal Life Policies?
Indexed Universal Life policies are not for everyone. Because of the investment component, these policies are better for those who can afford more significant face amounts. Smaller policies do not produce higher returns.
The chosen equity index funds drive the returns of your policies. Because of this correlation, if the index goes down, you will only receive the guaranteed minimum offered by your company. This return is usually pretty low but beats losing money in the market.
Speak with a financial professional to learn more about indexed universal life insurance. They can help you decide if an IUL is a good fit for your portfolio.