Life Insurance:
What Is An IUL?
Despite what you may think, life insurance can provide more than just a death benefit, assuming you have the right kind. You may be asking: What is an IUL?
What Is An IUL?
An IUL is an indexed universal life insurance policy. For some people, it can be part of their retirement strategy. With an IUL, you can fully fund the policy. Because of this, you may be able to access an income source, without paying tax on that money. In other words, if you take money out against your policy, the income may not be taxable. Also, an IUL may offer more than a regular life insurance policy. The term “universal” means the policy lasts your whole life. It may also potentially build a cash value. Additionally, an IUL may offer death benefits.
Some retirees use an IUL as part of their retirement strategy.
The way it works is fairly simple. First, you buy an IUL policy from an issuing insurance company. Remember, an IUL is an insurance product. Therefore, it comes with certain requirements that the insurance company must follow. Second, the insurance company links your policy with an index (or several indexes). This gives your policy the potential of growing in cash value. Third, the insurance company maintains both living and legacy benefits. For example, if you do not withdraw too much money, the insurance company assures your benefit value.
What's What With An IUL?
When you put money into an IUL, some of that buys life insurance coverage. Additionally, the insurance company has costs for maintaining your policy. However, once your policy is paid for and the costs are taken out, the remaining money is your policy’s “cash value.” With an IUL, it may be possible to see an increase in your cash value. This happens based on the performance of an index. However, none of the money you contributed is at risk if, say, the stock market drops. For this reason, an IUL offers more safety compared to a lot of other options.
How does an index affect cash value? Well, let’s use the S&P 500 index as an example. This index may follow a similar pattern as the S&P 500 stocks do. However, an IUL does not put your policy value at risk when the S&P 500 stock is down. If your index goes down, your policy benefit stays the same. On the flip side, if the index rises, you may see a potential increase in your cash value.
IUL Options
You have some options when it comes to IULs. For example: an IUL may be a viable way to protect some of your money. Indeed, most financial vehicles, such as traditional retirement accounts, come with a limit on how much money you can put in each year. So, an IUL may act as another way to keep money safe. Your money is going towards a death benefit as well as possible living benefits. Not to mention, these benefits can be received tax-free.*
Although you may see some similar potential protections, an IUL is different than a fixed index annuity.
For one thing, an IUL may provide tax-deferred or tax-free* income. The rules about taxes and income vary. So, be sure to reach out to us to find out if the option of tax-free* income may be available for you.
For Your Loved Ones
Retirees may also select an IUL for the legacy benefits. These include:
- Cash benefits to beneficiaries
- No need for probate for your death benefits
- Receive a larger death benefit than what you put into policy
- Potential for benefit to increase over time
- Potential tax-free income for your loved ones
Keep in mind that there are many different IUL policies out there. What may work for one person may not work for another. To learn more about options and “what is an IUL?” in your case, reach out to us.
Let's discuss options.
We can help you understand what IUL is best for you and your family.
