Understanding Indexed Universal Life
Protection for today; flexibility for your future.
Indexed Universal Life is a Flexible Planning Tool
Indexed Universal Life (IUL) insurance is a valuable tool that can help you work toward several financial goals at the same time. First, the death benefit can provide a source of income for your beneficiaries, and help ensure that your dreams for them still happen—even if you are not there to personally provide for them.
IUL also has the ability to grow "cash value"—money inside a life insurance policy—over time. Any premium paid above the IUL policy's fees, charges and expenses (known as the "net premium") builds up as cash value, and can grow through credited interest. What makes IULs special, however, is the balance they may be able to provide between growth potential for cash values and possible protection against loss.
How Indexed Universal Life Works
IUL policyholders have control—within certain guidelines—over how the funds in their policy are allocated between different interest-accruing accounts. There is generally one fixed account, which gives an interest rate declared by the life insurance company, and multiple indexed account options.
When IUL policyholders decide to put funds in an indexed account—rather than receiving an interest rate chosen by the life insurance company, their cash value may be eligible to receive what is known as "indexed interest credits." Simply put, any funds in an indexed account receive an interest rate that is based in part on how a market index performs over a given period of time. The life insurance company uses the index as a benchmark to help determine any credits that the IUL policyholder may be entitled to. The rate for an indexed account may be either higher or lower than the interest rate the life insurance carrier credits on the non-indexed accounts (e.g. the fixed account), and is subject to limits.
Each indexed account option has a minimum guaranteed interest rate1, protecting it against loss in the event that a market index goes down. If the option has a guaranteed minimum interest rate higher than 0%, the indexed account may even be eligible for interest during periods where the market index has gone down.
How Can Indexed Universal Life Help You Meet Your Financial Goals?
Cash value in a life insurance policy can add flexibility to your financial planning. Funds in an indexed universal life policy can later be withdrawn, taken out as loans, used as collateral, or can help cover the costs of maintaining the insurance coverage.2
Some have found cash value life insurance to be a helpful way to:
- Generate tax-free retirement income streams.
- Help cover the cost of education for children and grandchildren.
- Set aside financial resources for the unexpected.
- Plan for increasing costs of health care, long-term care, assisted living and other similar expenses.
Indexed universal life provides death benefit protection today, and flexibility to help cover your needs in the future. When funds are allocated to an indexed account option, cash values may get the dual benefit of increased upside potential through index-based growth and downside protection against market-based loss.