What Is an IUL (Indexed Universal Life Insurance)?
An Indexed Universal Life Insurance (IUL) policy is a type of permanent life insurance policy that offers both a death benefit and the opportunity to grow cash value over time.
What makes IUL unique is how it links the cash value growth to the performance of a market index, like the S&P 500. You get the potential to earn interest based on market gains, but your money isn’t directly invested in the stock market.
This means you can enjoy the benefits of market growth without risking the cash value when the market declines. Essentially, your policy’s cash value has a “floor” to protect you from losses, but also a “cap” that limits how much you can gain in strong market years.
Interested in Learning How an IUL Might Work For You?
Did you know all IULs are not equal?
How Does IUL Work?
Here’s how IUL works in simple terms:
- You pay your premiums, and part of that money goes toward maintaining your life insurance coverage (the death benefit).
- The rest is placed in a cash value account, which grows based on how a selected market index performs.
- Your cash value grows tax-deferred, meaning you don’t have to pay taxes on it as it accumulates.
- Your premiums are flexible which means you have the choice to minimally fund an IUL if you are financially ready for a max funded iul which is how you maximize your cash accumulation.
Key Benefits of IUL
- Cash Value Growth Tied to Market Performance: Your policy grows based on an index like the S&P 500. However, if the market performs poorly, your policy has a “floor” that prevents you from losing value.
- Flexible Premiums: IUL policies are more flexible than traditional life insurance. You can adjust your premium payments and even skip payments if your cash value is large enough to cover the cost of the policy.
- Access to Cash Value: Over time, you can borrow against your IUL’s cash value to fund things like retirement, emergencies, or education. Just be aware that any loans will reduce your death benefit if not repaid.
Who Should Consider an IUL?
An IUL can be a good fit if you want life insurance coverage and are also looking for a way to grow your savings with some exposure to the stock market, but without the risk of losing money during market downturns. It’s ideal for someone who wants long-term protection and flexibility with their premiums, as well as access to cash for future needs.
Read more about how to open an IUL account.