IUL Pros and Cons

IUL Pros and Cons

Indexed Universal Life (IUL) insurance is a type of permanent life insurance that offers both a death benefit and a cash value component. Like any financial product, an IUL has its pros and cons. It’s important to note that the specifics of any IUL policy can vary, so it’s crucial to carefully review the terms and conditions before making a decision.

Here are some general IUL pros and cons:

Pros of an IUL

Tax Deferred Growth and Cash Value access

One of the biggest pros of an IUL is its tax-deferred growth in a cash account. The cash value component has the ability to grow against a stock market index, such as the S&P 500. As this cash value grows, you can borrow against it tax-free and at low interest rates for any number of lifetime needs such as college, emergencies, or even to provide a tax-free retirement.

Flexible Premiums

Another benefit of an IUL is that its premiums are very flexible. As your policy grows and matures, you may run into situations in your life where you want to adjust your premium payments. An IUL would allow you to do this. You will want to work with an agent who understands how to structure your policy in order to support this, so an agent experienced in structuring IUL’s is crucial.

Principal Protection

IUL policies typically have a floor, ensuring that the cash value doesn’t decrease due to poor market performance. This creates a protection of cash, which can help create risk mitigation in more volatile markets while still allowing for growth..

Death Benefit

LIke other types of insurance, an IUL provides a death benefit to your beneficiaries when you pass. This provides protection for your loved ones when you aren’t around anymore.

Cons of an IUL

Growth Caps

An IUL is typically subject to a cap in its growth, meaning even if the market it is invested against does extremely well, it will only grow to a certain ceiling. This is the downside of the growth component, where other retirement options such as a 401k or IRA could grow more aggressively.

Surrender Charges

IUL policies often have surrender charges, which are fees imposed if the policy is surrendered or cashed out within a certain time frame. This can limit liquidity and flexibility.

Health considerations

As with all types of life insurance, your health status can significantly impact your rates, making a policy potentially rather expensive. While significantly resolved health conditions are often not seen as problematic, those that are current and problematic, or even managed with medication, can have an impact on your rates. Working with an experienced agent in this regard is crucial.

At Gallant Life Insurance, we have built hundreds of IUL policies for clients across all ages and health scenarios. If you’d like to speak to me about your options setting up a policy, please call 512-922-1273, click the Learn More button, or schedule a time to speak.