Indexed universal life insurance (IUL), commonly referred to as index life insurance, is a form of permanent life insurance that provides both death benefit protection and the opportunity to build cash value. Its distinctive features and benefits have contributed to its growing popularity in recent years.
This article provides information about the characteristics of index life insurance that make it an appealing option for many individuals.
Protection against market losses:
While the cash value growth is linked to a stock market index, index universal life insurance policies include a protection feature known as a “floor.” This means that even if the market performs poorly, the policyholder’s cash value will not decrease beyond a certain level, usually 0% or 1%. This feature helps protect savings from major market downturns.
Cash value growth based on an index:
One of the main features of index life insurance is its ability to accumulate cash value. Unlike traditional whole life insurance, where the cash value grows at a fixed rate, index life insurance ties its growth to a market index such as the S&P 500. This allows policyholders to benefit from market gains while avoiding direct investment risks.
Tax-deferred growth:
The cash value in an index life insurance policy grows on a tax-deferred basis. This means policyholders do not have to pay taxes on any earnings as long as the money remains in the policy. This can be beneficial for long-term savings and retirement planning, as it allows funds to grow without immediate tax deductions.
Flexible premium payments:
Many index life insurance policies offer flexible premium options. This allows policyholders to adjust their premium payments based on their financial situation. As long as there is enough cash value in the policy to cover costs, policyholders can lower or skip payments if necessary. This flexibility makes it an appealing option for those with changing financial needs.
Access to cash value:
Index life insurance allows policyholders to access their cash value through loans or withdrawals. These funds can be used for various purposes, such as retirement income, emergency expenses, or educational costs. However, any withdrawals or unpaid loans may reduce the death benefit payout.
Lifetime coverage:
Unlike term life insurance, which expires after a certain period, index life insurance provides lifelong coverage as long as premiums are paid and policy requirements are met. This ensures financial security for beneficiaries, regardless of when the policyholder passes away.
