Imagine you're shopping for a new car. You wouldn't just buy the first one you see, right? You'd do some research, compare different models, and seek other people's insights before you make a decision. The same goes for buying an indexed universal life insurance (IUL) policy. It's a big purchase that can affect your financial future, so you want to make sure you get the right one for you.
But how do you decide on an IUL policy? What are the features and benefits that matter most to you? And how do you compare different options and find the best deal?
In this blog post, we'll help you answer these questions and more. We'll explain what IULs are, who they are for, and what questions you should ask yourself and your financial professional before you buy one. By the end of this post, you'll have a detailed guide to help you decide on an IUL policy that fits your needs and goals.
What is an IUL?
An IUL is a type of permanent life insurance that offers two main benefits: a death benefit and a cash value. The death benefit is the amount of money that your policy pays to your loved ones if you die while the policy is active. The cash value is the part of your premium that grows over time and earns interest based on the performance of one or more market indices, such as the S&P 500.
One of the advantages of an IUL is that it gives you the flexibility to adjust your policy according to your changing needs and goals. You can change your premium payments, your death benefit amount, and your cash value allocation as you wish, within certain limits and rules. You also have the option to take loans or withdrawals from your cash value, subject to certain conditions and fees.
Who is an IUL for?
An IUL is for people who want both a death benefit protection and a cash value growth potential. It's especially suitable for people who want:
A permanent death benefit that lasts for their lifetime or beyond, so they can leave a legacy for their family or charity
An opportunity to grow their cash value faster than other types of permanent life insurance, such as current assumption universal life (CAUL) or guaranteed universal life (GUL), which offer lower or fixed interest rates
To reduce their policy's exposure to risk in a down market compared to variable universal life (VUL), which invests directly in the stock market and can lose value if the market declines
An IUL is not for people who want a simple and affordable life insurance policy that only provides a death benefit for a specific period of time, such as term life. It's also not for people who want a guaranteed cash value growth regardless of market conditions, such as whole life, or a higher potential return on their cash value by taking more risk in the market, such as VUL.
What to ask yourself and your financial professional
Before you buy an IUL policy, you should have a clear idea of what you want to achieve with it and what features and benefits are important to you. Here are some questions to help you narrow down your choices and find the right IUL policy for you:
Is your main goal to provide a death benefit protection for your family, to accumulate cash value for retirement income, or somewhere in between?
If you want a death benefit protection, do you prefer a lifetime guarantee that ensures your policy will never lapse as long as you pay the required premiums, or a life expectancy guarantee that offers lower premiums but may run out before you die?
If you want to access your cash value, do you want multiple loan options, such as fixed, indexed, or variable loans, that allow you to borrow money from your policy at different interest rates and repayment terms?
If you want to grow your cash value, do you want the simplicity of using the S&P 500 index, which tracks the performance of 500 large US companies, or do you want to diversify among other indices, such as the Russell 2000, which measures the performance of 2000 small US companies, the Hang Seng, which tracks the performance of 50 companies in Hong Kong, or proprietary indices, which are created by the insurance company and may have different rules and formulas?
If you want to boost your cash value growth, are you comfortable with products that offer interest rate bonuses and/or multipliers, which are additional credits or factors that increase your interest rate based on certain conditions, such as paying a higher premium or staying with the same policy for a longer period of time?
If you want to protect yourself from unforeseen health expenses, do you want a long term care or chronic illness rider, which allows you to use part of your death benefit to pay for medical or personal care services if you become unable to perform certain activities of daily living or require substantial supervision due to cognitive impairment?
These are just some of the questions you should ask yourself and your financial professional before you buy an IUL policy. This Insightful Decision Guide - Indexed Universal Life (IUL) is a start, as there may be other factors that affect your decision, such as the reputation and financial strength of the insurance company, the fees and charges associated with the policy, and the tax implications of your policy transactions.
Buying an IUL policy is a lot like buying a car.... That's why it's important to do take your time, do your research, and now with LifeInsuranceReview.com, you have a trusted resource to consult as well as an expert second opinion.
Insightful Decision Guide - Indexed Universal Life (IUL)
Top 3 FAQs About IULs:
What is indexed universal life insurance and how does it work?
Indexed universal life insurance is a type of permanent life insurance that provides a death benefit and a cash value component that can grow based on the performance of a stock market index, such as the S&P 500. The policyholder can choose how much of their premium goes to the cash value and how much goes to the cost of insurance. The policyholder can also adjust the amount and frequency of their premium payments, within certain limits, to suit their changing needs and goals. The cash value can grow tax-deferred and can be accessed through loans or withdrawals for various purposes, such as retirement income, education expenses, or emergencies.
What are the benefits of indexed universal life insurance?
*It offers a potential for higher returns than other types of permanent life insurance, such as whole life or traditional universal life, because the cash value can grow based on the performance of a stock market index.
*It offers protection from market downturns, because the cash value will not lose value if the index performs negatively. However, the cash value may not grow at all or may grow very little in some years, depending on the index performance and the policy features.
*It offers flexibility and control, because the policyholder can choose how to allocate their premium, how to adjust their premium payments, and how to access their cash value. The policyholder can also choose from different index options, crediting methods, and interest rate caps and floors, depending on the policy.
*It offers tax advantages, because the cash value grows tax-deferred and the death benefit is generally tax-free to the beneficiaries. The policyholder can also access the cash value tax-free through loans or withdrawals, as long as the policy remains in force and does not lapse.
What are the drawbacks of indexed universal life insurance?
*It can be more expensive than other types of permanent life insurance, because it has higher administrative fees and charges to cover the index-linked features and the flexibility of the policy.
*It can be more complex and confusing than other types of permanent life insurance, because it involves many variables and choices that can affect the cash value growth and the policy performance. The policyholder needs to understand how the index options, crediting methods, interest rate caps and floors, and other policy features work and how they may change over time.
*It can be more risky than other types of permanent life insurance, because it depends on the performance of the stock market index, which can be
A SPECIAL BONUS, here's an insider look at our LifeInsuranceReview.com (LIR) Internal Comparison Guide of Top Life Insurance Carriers of Indexed Universal Life (IUL), which we tracked and upon which we based our comparative review analysis.
