Advantages of Indexed Universal Life Insurance
Below are some advantages that, if set up properly, an Indexed Universal Life Insurance policy can offer you in addition to the financial protections that all life insurance policies offer. IULs are also designated as non-qualified plans, so there is very little government regulation but many tax-saving advantages.
Linked Indexed Performance
The cash value inside an Indexed Universal Life insurance policy is LINKED to a specific index (like the S&P 500), but it is NEVER INVESTED. Life insurance is never an investment.
Tax-Deferred Growth
Money inside your cash value accumulates tax-free.
BONUS: Distributions, if done correctly, are also income tax-free.
Tax-Free
Access
Not only is your money growing tax-deferred, your distributions, if done correctly, are also income tax-free.
Non-Qualified Status
Life Insurance policies are largely considered non-qualified, which means the IRS has no guidelines on when*, and for what reason, you can access your cash value. You can access your money, penalty-free, and tax-free, at any time. for any reason.
*Most Indexed Universal Life insurance policies do not allow loans within the first five years of a policy. Most insurance companies also utilize a surrender period, where an insured does not have access to their full cash value until after a certain amount of time has passed. This period is usually 10 years.
Flexible
Premiums
It's worth repeating. An IUL is an insurance policy and insurance policies require regular premium payments.
However, with an Indexed Universal Life insurance policy, when set up correctly, you can have flexible premium payments, or no premium payments at all.
Annual
Resets
Positive gains are credited to your cash value on an annual basis and are locked-in to become the "floor" for the next year.
This is referred to as the annual reset.
If during the next year, the index returns are negative, your cash value will assume a 0% rate of return, and will not decrease below the previous year's "floor."
Below is a hypothetical example.
Annual Reset Example
Based on a hypothetical 5 year return, using the S&P 500 Index, and an 8% cap.
Policy Year
Thru Year 1
Thru Year 2
Thru Year 3
Thru Year 4
Thru Year 5
Averages:
S&P 500
Index Gains
8%
6%
12%
(-8%)
4%
Avg. 4.4%
Index %
Credited
8% (cap)
6%
8% (cap)
0% (floor)
4%
Avg. 5.2%
Cash Value
of $10,000
$10,800
$11,448
$12,364
$12,364
$12,859
Avg. 5.3%
Still want to learn more about Indexed Universal Life insurance?
Check out our HOW IULs WORK page, our LIGHTNING FAST LESSONS page, or watch the video this from Patrick Kelly, the author of "Tax-Free Retirement" and "The Retirement Miracle," and one of the nation's leading experts in Indexed Universal Life insurance.