Indexed Universal Life Made Simple
8/14/2023 · 2 min read
Indexed Universal Life
Indexed Universal Life insurance not only provides a safety net for your loved ones in the event of your passing but also offers growth potential by linking your cash value to a market index, like the S&P 500, allowing you to benefit from market upsides while having protection from downsides.
Indexed Universal Life (IUL) insurance has several distinct features that differentiate it from other types of life insurance.
Here are five key features:
- Equity-Indexed Earnings: IUL policies allow policyholders to earn interest based on the performance of an equity index, like the S&P 500. This means that if the index performs well, the policyholder may see higher returns on the cash value component of their policy.
- Downside Protection: One of the hallmark features of an IUL policy is that even if the linked index performs poorly, the policyholder is guaranteed a minimum interest rate (often 0%), ensuring that they won't lose principal due to market downturns.
- Flexibility: IUL policies often offer adjustable premiums and death benefits. This means that as a policyholder's financial situation changes, they may have the ability to adjust how much they're paying or the amount of coverage they have, within certain limits.
- Cash Value Accumulation: Over time, an IUL policy can build a cash value. This value can be borrowed against or withdrawn, providing policyholders with financial flexibility. This cash value growth is tax-deferred, meaning you don't pay taxes on the growth until you withdraw the money.
- Tax-Free Death Benefit: Like other forms of life insurance, the death benefit paid out from an IUL policy is generally tax-free for the beneficiaries. This ensures that loved ones receive the full benefit amount without reductions from taxes.
How IUL works in 30 seconds
Imagine Indexed Universal Life (IUL) as a combination of protection and potential growth. Let's say today, on August 11th, 2023, you invest $1,000,000 in IUL. Out of this, $946,550 is safely tucked away into something like a 1-year US Treasury note, and in a year, it'll be worth the same $1,000,000. That's the safety net - your downside protection.
Out of the remaining $53,450, a portion covers your policy's initial costs, while most of it is invested into an indexed options package, tied to markets like the S&P 500. This investment offers your money the opportunity to grow, tapping into market upsides. Essentially, with IUL, you safeguard your initial investment and simultaneously provide it with a platform to potentially flourish.
BackNine life agents interested in providing the best options for their clients are encouraged to reach out to BackNine's Advanced Markets for detailed IUL illustrations tailored to individual needs.
Director of Advanced Markets,
Backnine Insurance & Financial Services, Inc.,
(818) 221-0010 - direct