Indexed Universal Life Insurance
Life insurance is an insurance product that protects individuals against the risk of death, illness and injury. If the insured person(s) die, the insurance company pays out a sum of money to the beneficiaries. If the insured person(s) get terminal illness, chronic illness, critical illness or critical injury, the insurance company pays out a sum of money to the insured person(s).
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There are many different types of life insurance to choose from. There are the two broad categories that all life insurance can be placed into: temporary and permanent protection. The first decision one needs to make before deciding which type of insurance is right for them is whether they want temporary or permanent coverage.
Indexed Universal Life Insurance
Special
A life insurance product that offers liquidity benefits, legacy benefits, living benefits and growth
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An Indexed Universal Life Policy (IUL) is a type of permanent lifetime life insurance policy that provides a death benefit as well as the ability to build Accumulation Value.
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IUL was developed in 1997, and was a solution for people who wanted the safety and guarantees of Universal Life, but also wanted a potential for greater interest crediting. IUL has greater upside potential (although limited), minimum guarantees, and downside protection. This type of product is typically positioned for clients who are risk averse, but want greater potential for indexed gains. The policy holder cannot lose their principal due to fluctuations in the market with this type of product. IUL provides lifetime coverage if performance warrants, as well as minimum guaranteed cash values and death benefits (like traditional Universal Life).
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This type of policy has the potential to earn interest based upon the performance of a index, such as the Standard and Poor’s 500® index. It is considered a moderate risk/moderate return insurance product. IUL is resemble VUL because the client has some control over the policy through the premium allocation (although not all policies give a choice of multiple crediting methods).
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However, like traditional UL, the insurance company assumes any risk in the event of a downturn in interest rates. The funds that back this type of product are also held in the insurance carrier’s general account. Therefore, the IUL policyholder is always protected by the minimum guarantee, regardless of interest rate performance. Account values are never invested directly in the market and the policy will never be credited a negative interest rate. This allows the policyholder to take advantage of the potential increases in the index while maintaining a level of protection in the event that the index drops below 0%.
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With an IUL policy, you have the flexibility to adjust the amount of premiums you contribute. You may even have the potential to stop contributing premiums if you accumulate enough to cover the cost to keep the policy active. If your Accumulation Value is enough, you may be able to access some of your accumulation later in life through policy loans.
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