What Is Indexed Universal Life Insurance?
An Indexed Universal Life Insurance policy, is a unique type of life insurance policy in that, in addition to permanent death benefit protection, provides the opportunity for cash value growth through a Fixed Account and an Index Account. It offers death benefit protection when death occurs, and as at it happens with other forms of permanent life insurance, premium payments may earn interest and grow cash value.
If you are looking to control your financial future, consider a permanent life insurance policy with the potential to build cash value that can be used to help supplement your retirement income.
Features Of A Typical Universal Life Insurance Policy
While Indexed Universal Life Insurance (IUL) policies are not all identical, and exactly how they are structured depends on the issuing life insurance company, the following are fairly standard with most IUL’s:
- Immediate Financial Protection – Death benefit protection for the loved ones.
- No Maximum Contribution Limit – Life insurance is not a qualified retirement plan, so it is not subject to tax-qualified plan contribution limits. However, there are limits on the amount of premium that may be paid into a policy to qualify as life insurance.
- Downside Protection, Upside Potential – Interest credited is never less than zero (this is a big one!) and can reach as high as the interest rate cap. The Index Account can’t lose money due to poor index performance.
- Minimum Account Value – An average annual interest-rate guaranteed and evaluated every certain number of years (number of years may vary from company to company) and on death, lapse, surrender or policy maturity.
- Choice of Loans – Policy loans are available. Variable interest rate and guaranteed zero cost policy loans are usually available.
- Flexible Premiums – Premium payments can be adjusted based on available resources.
Indexed Universal Life Insurance gives you the opportunity to earn-tax deferred interest based in part on the performance of your Index Selection and/or the Fixed Account.
The Fixed Account
The Fixed Account earns interest at the insurance company’s declared rate. Insurance companies typically guarantee that the interest rate for the Fixed Account is never less than a certain percentage.
The Index Account
Credit to the Index account are based on the Index Selections (for instance, S & P 500, NASDAQ-100, etc.) you have chosen and is subject to the Index Participation Rate, the Index Cap Rate and Index Floor Rate. The Index Credit will never be less than zero; again, this is big because you participate on a portion of the index earnings, when the index goes up for a given perion, but do not participate in the index loses. Funds you deposit into the Index Account are protected in a poorly performing market because you do not participate directly in any stock market indices.
- the interest rate credited to the policy’s Index Account value is based on the performance of the index or indices chosen and will never be less than zero.
- the premiums are not invested in any stock, bonds, or equity investments.
- the index performance does not include dividends on the stock that make up each index.
- the premium allocation to an index does not represent an investment in any index or stock market.
Should You Consider Indexed Universal Life Insurance?
Here are some questions to consider to help you determine if using life insurance for financial protection and a strategy to help supplement your retirement income is right for you:
- do you have a need for life insurance protection today to help replace your income in the event of your death, to help your family pay for items such as the mortgage or rent, insurance premiums, automotive expenses, property taxes and groceries?
- are you planning for retirement and are you between the ages of 30 and 60?
- are you interested in having additional retirement income stability?
- have you utilized a qualified plan (such as IRA, tax-qualified annuity, 401(k), or savings plan offered through your employer) or do not have access to a qualified plan for retirement planning?
The above listed are not the only factors to take into account when considering an Indexed Universal Life Insurance policy. There are others relating to your particular personal and financial situation.
Accessing Your Policy’s Cash Value
In case of future financial emergencies, temporary financial setbacks, or to help supplement retirement income, you have access to the cash surrender value that may accumulate in your policy through partial withdrawals, variable interest rate loans and standard loans.
- permanently lower the death benefit of the policy
- depending on the tax status of the policy, it is possible to take a partial withdrawal that is generally tax-free
- may be subject to a minimum amount
- a surrender charge and a processing fee may apply
- Variable interest rate loans against the policy cash value that is tied to a published monthly average
- With variable interest rate loans, the loaned portion of your cash value will continue to earn interest based on how the money is allocated t the Index Selections or the Fixed Account. In other words, the loaned amount continues to earn interest as if no loan has been taken
Links to related information
- VIDEO – How Indexed Universal Life Insurance Works – NORTH AMERICAN COMPANY FOR LIFE AND HEALTH
- The 10-10-10 Plan by AIG
- VIDEO – Life Insurance In Retirement Planning – NORTH AMERICAN COMPANY FOR LIFE AND HEALTH
- VIDEO – Life Insurance as a Risk Reducing Asset – NORTH AMERICAN COMPANY FOR LIFE AND HEALTH
And What Does All Of This Means To You?
It means that if you start planning early your retirement life, you will significantly increase the probabilities to have the lifestyle that you want when you retire. You should also let your licensed life insurance agent illustrate for you how INDEXED UNIVERSAL LIFE (IUL) insurance can help you achieve your financial goals at retirement.
OSCAR G. SURIS
FLORIDA-LICENSED LIFE, HEALTH AND VARIABLE ANNUITY AGENT