Indexed Universal Life Insurance

To comprehend Universal Life Insurance (IULs), you must first comprehend the distinction between term life insurance and whole life (or universal life) plans. 

Term life insurance is life insurance that is purchased for a specific period of time, usually stated in years. Twenty-year term insurance, for example, protects the insured against death for a period of twenty years as long as the premiums are paid on time. Term insurance is reasonably inexpensive until the term expires (for most individuals), at which point the premiums skyrocket if the insured want to renew (because the insured is now several years older than when the policy was created). There is no monetary value attached to term insurance. 

Whole life insurance is for the rest of your life. They offer not just a death benefit but also a monetary value. Whole life insurance premiums are much more than term life insurance premiums because you’re not only buying a transient death benefit with no cash value. However, the premium amount is also adjustable. A significant portion of those premiums is invested, and the cash value of your insurance grows, with much of it available for withdrawal without penalty if the need arises. Additionally, there is no limit to the amount you can provide each year.

IULs are a type of whole life insurance policy in which the cash value grows in accordance with index performance. Each year, you and your financial advisor invest the money in your policy in a growth index, which often reflects market indexes such as the S&P 500, Dow Jones Industrial Average, Nasdaq 100, and so on (the policy money is not invested directly into the stock market).

With UILs, you can have confidence with the stock market because the insurer will ensure that your policy will not lose value if the stock market drops (in exchange for caps in growth). So, if you choose the S&P 500 as your index, and it has a 4% cap, you will always see growth of 0-4%, regardless of how the stock market performs.

IULs also provide for tax-deferred growth for retirement. IULs are frequently used for key-person insurance in businesses, premium financing programs, and estate planning. Here’s more tax strategies information from Bellvue Rush.