Indexed Universal Life Insurance (IUL)
In addition to a death benefit, indexed universal life (IUL) provides a means for the policyholder to allocate cash value amounts to either a fixed account or an equity index account. The indexed universal life insurance policies give tax-deferred accumulated cash for retirement while they also maintain a death benefit alongside.
How it Works?
On the payment of a premium, a part goes for annual renewable term insurance and the rest is added to the cash value. Based on increases in equity index, the total sum of cash value is credited. Certain policies can allow an insured to select multiple indexes.
Specifically, indexed universal life insurance usually offers a guaranteed minimum fixed interest rate and also a choice of indexes for the policyholder which they can decide on the percentage that is allocated to the fixed and indexed accounts.
At the beginning of a month the value of the selected index is recorded and will be compared to the value when the month ends. An increased index during the month will be is added to the cash value, and this index gains will be credited back to the policy either on a monthly or annual basis.
To explain in a practical way, if there is a 5% gain on the index from the beginning of March to the end of March, the 5% is multiplied by the cash value, and the interest obtained is added to the cash value. However, if there is no gain on the index, no interest is credited to the cash account. A percentage rate is used to credit the gains from the index, and it is known as the participation rate, this rate varies from 25% to even more than 100%.
Benefits of the Indexed Universal Life Insurance
The indexed universal life insurance has a wide range of benefits which include:
Unlimited contribution: Indexed universal life insurance policies do not have limitations on annual contributions.
Death benefit: For the indexed universal life insurance, the death benefit is permanent, and is not treated to income or death taxes, also it doesn’t need to go through probate.
Less risky: The policy is not directly invested in the stock market in the indexed universal life insurance, thus, it reduces the risk on the policy.
Low price: The premiums in indexed universal life insurance are considerably low compared to other types of life insurance.
Cash value accumulation: Due to the fact that the amounts that are credited to the cash value are tax-deferred, it makes it possible for the cash value to accumulate to the extent that it can pay premiums and help you reduce or even stop making out-of-pocket premium payments.
Flexibility: If there is a feature which the indexed universal life insurance enjoys optimally, it is flexibility; the policyholder is given the power to control the amount risked in indexed accounts against a fixed account, also, the death benefit amounts can be adjusted as needed. Finally, indexed universal life insurance has a wide range of optional riders, from no-lapse guarantees to death benefit guarantees.
Who can benefit from Indexed Universal Life Insurance
Indexed universal life insurance policies are a great choice if you are looking for the security of a fixed universal life policy and the interest-earning potential of a variable policy. If you wish to have a permanent life insurance protection and also want to take advantage of possible cash accumulation through an equity index, then this policy will be the best for you to consider.