Indexed universal life is a type of permanent life insurance that lets you tie your cash value account to a financial index for the chance to accumulate more interest. All permanent life insurance offers cash value, an account attached to your policy that is funded by part of your premium payment.
But with indexed universal life (IUL), you have the chance to earn more than the standard interest percentage offered with most other types of permanent life insurance.
Why Choose Indexed Universal Life?
Let's talk about the benefits of this kind of policy. You get:
- lifetime coverage
- ability to increase or decrease your death benefit amount as necessary
- guaranteed minimum interest
- protection from market downturns
- ability to earn more than the guaranteed minimum based on the performance of an equity index
- flexibility in choosing the amount and frequency of your premium payments
- ability to access your policy's cash value during your lifetime via a withdrawal or a policy loan
- ability to select from riders (policy add-ons) that can waive your premium if you are disabled and can't work
What Else Should You Consider?
Now, let's look at a few of the factors that might be considered the "down side" of IUL:
- during market downturns, you won't lose money, but your cash value may experience little or no growth
- interest rate caps limit the growth during rapid market expansion phases
- policy surrender charges decrease your cash value if you decide to surrender the policy before the end of the surrender period
- your insurer may have fees or other charges associated with the management of your IUL policy that reduces your cash value
Should You Buy an IUL Policy?
Here's an easy checklist you can use to help determine whether IUL is right for you:
- You want life insurance that covers you for life.
- You want cash value.
- You want the freedom to adjust the amount and due dates of your payments.
- You plan to keep the policy for a long time (at least 10 years).
- You want the potential to earn more for your cash value account based on positive equity index returns.
- You don't want to worry about IRS regulations limiting contributions.
- You don't want to worry about tax penalties for early distribution.