Indexed Universal Life Insurance

What is Indexed Universal Life Insurance?

Indexed Universal Life (IUL) insurance is a type of permanent life insurance that offers a death benefit along with a cash value component. The cash value grows based on the performance of a market index, such as the S&P 500, which allows for potential higher returns compared to traditional universal life insurance.

Key features of IUL's include:

1. Flexible Premiums: Policyholders can adjust their premium payments within certain limits.

2. Death Benefit: Provides a tax-free death benefit to beneficiaries.

3. Cash Value Growth: The cash value can grow based on index performance, with a cap on maximum returns and typically a floor to protect against market losses.

4. Loans and Withdrawals: Policyholders can borrow against or withdraw from the cash value typically tax-free.

IUL policies combine the protection of life insurance with the growth potential linked to market indices, making them an attractive option for those looking for both insurance coverage and investment opportunities.

How an Indexed Account Works

Death Benefit Protection: Provides a death benefit alongside potential cash value growth.

Index Account Mechanics: Interest is credited based on the performance of a financial index, with a minimum interest rate of zero (the floor) and a cap on maximum growth.

Market Independence: The policy money is not directly invested in any index or stock market.

Rules of the Game:

It's always first down.

You can never lose yards (the floor).

You can gain a maximum of 8 yards per play (the cap).

Play-by-Play Examples:

A 6-yard gain moves the ball to the 35-yard line.

No loss or gain when sacked at the 13-yard line; ball remains at the 35-yard line.

A 7-yard gain moves the ball to the 42-yard line.

A 12-yard gain, reduced to 8 yards due to the cap, places the ball at the 50-yard line.

Game Summary: With the new rules, the team gains 31 yards, representing an 18-yard improvement over normal rules.

Implications: Indexed universal life insurance ensures no loss of principal (floor) and limits gains to the cap, locking in interest credits.

Accelerated Death Benefits

  • Critical Illness: conditions that may qualify include heart attack, cancer, stroke, major organ transplant, and kidney failure.

  • Chronic Illness: unable to perform at least two activities of daily living (bathing, continence, dressing, eating, toileting, and transferring) for at least 90 days.

  • Terminal Illness: diagnosed medical condition that results in a life expectancy of 24 months or less.