What is an Indexed Universal Life Insurance Policy?
An indexed universal life insurance (IUL) policy is a type of permanent life insurance that provides a cash value component, meaning you can borrow against the policy during your lifetime, as well as a death benefit component, which provides protection for your loved ones when you pass. Indexed universal life policy premiums are split between the cash value and the death benefit.
The cash value of an IUL account is connected to the performance of a stock market index, such as the S&P. Because of this relationship between your IUL and the market, the cash value can grow throughout your life time. Additionally, because an IUL account has a floor of zero, as long as policy premiums do not lapse, the account cannot lose money.
What Are the Benefits of an IUL?
- Tax-free cash value loans: As long as your policy remains current, you can borrow against your IUL account’s cash value at a low interest rate. The loan actually never requires repayment; its value is taken from your death benefit when you pass. So whether you have needs for college expenses, family emergencies, or even want a tax-free option in retirement, your cash is available to you.
- Accelerated Death Benefits: Most IUL policies have an accelerated death benefit clause, meaning you can draw against your death benefit in case of illness such as critical or chronic illness. Because these withdrawls are against the death benefit, they are tax-exempt. This feature provides an extra layer of insurance protection for you and your family.
- Principal Benefits When you take a loan against cash value in an IUL, the interest on the policy actually continue to grows against the total value, even though a loan has been taken against the account. So, for example, if your cash value is $150,000, and you borrow $50,000, your policy will gain interest against $150,000.