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What Is Index Universal Life Insurance?

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What Is Index Universal Life Insurance?

Most people have heard of the two main forms of life insurance — whole and term life insurance — but those aren’t your only options. In fact, there’s one option that is sometimes a bit of a mystery to people called Index Universal Life insurance (IUL). So, what it is and why might you opt for this coverage in addition to or in place of your current life insurance? Let’s explore.

What Is Index Universal Life Insurance?

Index Universal Life insurance is a little complex, but at it’s core, this form of life insurance will help protect your family and can potentially help you plan for your retirement or a second career. This works by allowing your account to accumulate cash value using the money you’ve paid for your premium. So, essentially, you get the usual benefits of life insurance — like providing your family with money to live off of, should you pass away — while also potentially helping you plan for your retirement.

This is achieved by choosing an index to leverage your deposits against. When that index value goes up, your account accrues cash value. Now, this doesn’t mean that you own stock, simply that an index is being leveraged. Think of it as pretend gambling with only benefits, in a sense. For example, if you choose the S&P 500 as your index, then when it goes up, your cash value goes up. The good part of this is that when the index goes down, you don’t lose cash value, offering you a kind of security that most investment vehicles do not.

The amount added to your account is added at the end of a set period of time — which is set in your initial agreement. For example, if the S&P spiked for one day within a month, but by the end was back to where it started, then you don’t lose money, but you didn’t accumulate any cash value either, since it remained level during the overall designated period.

Who Should Get Index Universal Life Insurance?

If you’re looking for a basic form of life insurance to simply protect your family and are barely making your employer-sponsored 401(k) payments, then an IUL likely isn’t for you. These plans don’t get as much notoriety because they often come with a higher price tag to start and to keep it up. However, there are reasons to get one, for example, if you plan on starting a business in the not-too-distant future.

Here’s how that would work: you’d pay your premiums on your IUL policy, and then you would take out a loan from the cash value your IUL accumulated over time. You can sometimes take out a loan from your term or whole life insurance policy as well, but since your IUL accumulates cash value, you’ll likely have a larger amount to borrow.

Even if you don’t plan on needed a loan from your policy, but you like the idea of your account earning cash value — and you can afford the premium payments — then this may still be a good option for you as a two-for-one retirement vehicle. Check with a financial professional before signing on the dotted line to ensure your policy has all of the potential perks and guaranteed protection you’re looking for.

Where Can I Get Index Universal Life Insurance?

Lots of companies offer IUL products, but not as many as offer whole and term life insurance. Because of this, you’ll need to do a bit of homework, but there are some ways to ease this process.

If you already have a life insurance policy you’re happy with –even if it’s a part of your benefits package at work — talk with that company first. They may offer a product that you find equally attractive. If you don’t have a policy, then talk to the financial institution that you bank with. They may also be able to look at your financial history with them and offer up some options that will help you achieve your financial goals while also protecting your family.

Of course, you can always peruse the internet, looking for a deal that you feel confident with, and if you have questions, as them. The worst thing you can do is get stuck with a plan that isn’t as beneficial as you thought it was going to be. No question is a bad question when it comes to securing your financial future.

When Will Index Universal Life Insurance Benefit Me?

All of these potential perks aside, an IUL will do exactly what life insurance is meant to do which is protect your family should you unexpectedly pass away. How much protection they provide is up to you and the policy you choose, but the fact remains that your loved ones will be protected.

But you don’t have to wait until you die to reap the benefits of IULs. As previously stated, you can use your policy to help start a business, buy a home, etc.with a tax-exempt loan. So, with that said, your IUL can benefit you whenever you may need it to. Though, it’s important to keep in mind that your loan will need to be repaid for your policy to retain its benefits.

These are the basics of IULs but they can be very complex life insurance vehicles. Be sure to talk to someone you trust before making your decision about which to purchase. You always want to get something that protects you, but doesn’t hurt your other financial goals by being too pricey.

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1 Comment

1 Comment

  1. Klsmyr

    April 24, 2017 at 6:24 pm

    Please educate yourself before buying this type of insurance or before considering it at all. Although what is mentioned in this article is true, there is a whole lot that is unsaid.

    Be sure to ask the selling agent if you have any savings accrued in the first 3-5 years. If not, why? Where did it go?

    How much interest do I have to pay on my own money just to “borrow” it?

    If I borrow against my own money in the policy, is the loan deducted from my death benefit? If so, why? Aren’t you paying a higher premium for two features (insurance AND savings)?

    What fees are deducted from my premiums?

    And then go get a term policy and invest the difference into a muni bond fund or a mutual fund in a ROTH IRA lol

    This is just another form of Whole life. They just want to make is sound fancy. You’ll still be paying them premiums for your whole life, which is what they want.

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