What is an IUL
Indexed Universal Life Insurance
Indexed universal life, or IUL, insurance is a type of life insurance that can offer financial security and flexibility. With an IUL, you have the potential to take advantage of stock market returns, without your principal being at risk. Additionally, the interest earned is tax-deferred, and goes to your beneficiaries as a tax-free death benefit.
Instead of growing based on a fixed interest rate, an IUL’s interest is based on the performance of a market index. In contrast to actually investing in the market, however, you won’t lose money if your index loses value. This is because an IUL comes with a guarantee* to protect your principal.
Different Types of Universal Life Insurance
Several types of universal life insurance exist.
For example: fixed universal life insurance, variable rate universal life insurance, or indexed universal life insurance, as we’ve already discussed. An IUL policy offers certain advantages over the other types of life insurance available. An IUL might be a good option if you’re looking for a policy focused on flexibility and high growth potential. Is an IUL the right choice for you? Dotson Financial can help you explore your options. Contact us to learn more.
How Indexed Universal Life Insurance Works
Premiums cover a portion of the cost based on the life expectancy of the insured. Cash value is then added to the rest. Your money may also earn indexed interest, The cash value is credited with interest based on increases in the index. Some policies allow you to select more than just one index. This offers further flexibility when it comes to your IUL. There are several options when it comes to IULs, and how they may be able to help you financially in retirement.
Insurance companies protect your money against loss. An IUL is linked to an index, but the money you contribute is not directly invested in the market. Your money won’t be affected if the market falls.
An IUL follows different tax laws than traditional retirement accounts. And, IULs don’t come with annual contribution limits like 401(k)s or IRAs. You can also withdraw money from an IUL at any time, with no penalty. Another benefit? It also doesn’t have required minimum distributions (RMDs) at age 72. And, if you need it to pay for long-term care, you can access the IUL’s death benefit while you’re still alive.
After you pass away, your family will receive a death benefit from the IUL. The death benefit may increase over time, depending on how the index performs. Beneficiaries typically receive more than initial contributions. And, the death benefit doesn’t go through probate.