Indexed universal life insurance, also known as IUL, is a type of permanent life insurance that offers flexible premiums, cash value accumulation, and long-term tax benefits. It’s different from traditional universal life insurance because it allows policyholders to take part in the stock market. The stock market is used to determine the cash value and death benefit of the policy.
IUL is flexible. Policyholders can change their premium payments, death benefit amounts and investment options. This means policyholders can change their policy to meet their changing needs and budget. IUL policies also have a fixed interest rate, which is usually lower than traditional universal life policies. But, it also gives the chance to earn more if the stock market does well.
IUL policies also have cash value. A part of the premium payments goes into an investment account that earns interest over time. The cash value can be used to pay premiums, as well as provide savings or investments. Policyholders can also borrow against the cash value, but it can decrease the death benefit and cash value.
IUL policies also have tax benefits. The cash value of the policy grows tax-deferred, meaning policyholders don’t have to pay taxes on the interest earned until it is withdrawn. The death benefit is usually paid out tax-free to beneficiaries.
However, IUL is usually more expensive than term life insurance and traditional universal life insurance. If premiums are not paid on time or if the cash value doesn’t grow as expected, the policy could lapse and coverage would be lost. There is also a risk of market fluctuations, which can impact the cash value and death benefit of the policy.
It’s important to remember that IUL is a complex product. Before buying it, it’s best to speak with a financial advisor and make sure you fully understand the product, its risks and benefits.
In summary, indexed universal life insurance (IUL) is a type of permanent life insurance with flexible premiums, cash value accumulation and tax benefits. Policyholders can take part in the stock market, but it’s more expensive than other types of life insurance. Before buying, speak with a financial advisor to understand the product and its risks and benefits.