Are you new to the world of Index Universal Life insurance (IUL)? Don’t worry, you’re far from alone. This type of variable life insurance can be a complex topic because of all of the potential benefits it can offer both policyholders and beneficiaries. Yes, you read that right; this form of life insurance will not only provide financial protection for your family, should the unexpected happen, but it may also offer living benefits you can take advantage of.
Since they offer so many variable benefits, here are a few things you may not have known.
Index Universal Life Insurance is Permanent Life Insurance
When it comes to life insurance, there are two main kinds that most people know about: permanent and term life insurance. Frequently, “permanent” and “whole” life insurance are thought of as the same thing, but in fact whole life insurance is a form of permanent life insurance. All that this means is that if you have permanent life insurance, you will be covered for your entire life, not only a set amount of time, as is the case with term life insurance.
So, that means once you have an IUL policy, you are covered for your entire life and your beneficiaries will be protected when you pass away. IULs are also a form of variable life insurance, meaning it offers investment opportunities and will have a growing cash value amount associated with it. But whether you hear it called variable or by its name IUL, the important characteristic to remember is that you are covered for your entire life.
You Can Skip a Payment
Usually this isn’t a “perk” of IULs that financial institutions like to tell people about because in general, missing payments is never a good thing. However, most people know that now and then, times get hard and you need some flexibility with your bills. IULs offer that flexibility. Here’s how it works:
If your premium is $200, and you have a cash value of $1,000, technically you could miss up to five payments without being in danger of your policy lapsing. This is because the policy would take $200 from the $1,000, leaving you with a paid premium, but only $800 in your cash value (of course, this can be rebalanced if some of the premium payment includes a cash value deposit).
You don’t want to make a habit out of taking advantage of this feature, but it certainly is nice to know, especially since premiums for IULs tend to be higher than other forms of life insurance. While a term payment might be $25/month, your IUL might be $200. However, that’s not always the situation, and premiums are determined on a case-by-case basis, based on your age, health, etc.
Additionally, if you draw too much from your cash value and still can’t make your premium payments, your policy will be in danger of lapsing, and you won’t recover the money you have put into it.
Index Universal Life Insurance Can Pay For Itself
It’s not often that you have an investment vehicle which pays for itself, but that’s an option with IULs. Keep in mind that to make this work, it will require that you pay over what your premium is, but if you’re able to do that then this might be a great option for you. Here’s how that works:
If your premium is $100 a month, $20 of that goes toward your insurance while the remaining $80 goes towards your cash value. If the interest rate on your cash value is 25%, then the return from that month would be $20. This means you essentially paid for your life insurance — a cost you would be paying for regardless — with the money made using the cash value interest.
These numbers are simplified for the sake of illustration, so don’t get too excited about a 25% return on investment (ROI), but it shows how your policy can kill two birds with one stone.