IUL (Index Universal Life Insurance) is a type of Whole-life insurance product. It comes with a combination of two benefits: Death benefit and cash value component. But, what makes it different than the other whole-life products is that the cash value of an IUL policy grows based on the performance of a selected stock market index like the S&P 500.?
- Premium Payments: A portion of the premium goes towards the cost of the insurance while the rest is allocated to the cash value account.?
- Cash Value Growth: The cash value grows based on the performance of the chosen index, but it does not directly invest in the stock market. Instead, the insurer credits interest to the cash value based on the performance of the index, subject to a cap and a floor. The floor makes sure that even if the index performs poorly, the cash value does not decrease, while the cap limits the maximum interest credited.?
- Flexibility: An IUL policy offers flexibility to the policyholder in terms of premium payments and death benefit amounts. A policyholder can adjust their premiums within certain limits and can even use the cash value to cover the premiums.?
- Tax Advantages: The cash value account grows tax-deferred and policy loans and withdrawals are generally tax-free up to the amount of premiums paid.?
- Risk and Reward: An IUL policy offers the potential for higher returns than a traditional whole-life product due to the index-linked interest, but it also comes with more risk, as returns are tied to market performance.?
So, these were some of the features of an Index Universal Life Insurance.?
