Indexed Universal Life Insurance: Understanding How it Works
Indexed Universal Life (IUL) insurance is a type of life insurance that combines the death benefit protection of traditional life insurance with the potential for cash value growth based on the performance of a stock market index. But what exactly is IUL, and how does it work?
First, let’s start with what a traditional life insurance policy provides. With a traditional life insurance policy, you pay a monthly premium to ensure that a lump sum payment is made to your beneficiaries upon your death. This is known as the death benefit.
IUL policies work similarly, but they also include a cash value component that can grow over time based on the performance of a stock market index, such as the S&P 500. This growth potential is limited by a cap, which is a set maximum rate of return that the policy can achieve.
One of the key benefits of IUL is that your cash value is protected from market losses. This means that if the stock market experiences a downturn, your cash value will not decrease. Instead, it will simply not grow as much as it would have if the market had performed better.
Another benefit of IUL is that you can access your cash value through loans or withdrawals. This can be especially helpful in retirement, as it can provide you with a steady stream of income without having to sell investments or dip into your savings.
It’s important to note that IUL policies do come with fees, such as insurance charges and administrative fees. These fees can eat into your cash value, so it’s crucial to carefully consider the cost before purchasing a policy.
In summary, IUL is a type of life insurance that provides death benefit protection and the potential for cash value growth based on the performance of a stock market index. It offers protection against market losses and the ability to access your cash value, but it’s important to consider the fees before making a decision.