What is Indexed Universal Life Insurance (IUL)?
Indexed Universal Life (IUL) is a type of Universal life policy that offers the consumer both opportunity and safety. The opportunity is generated as the cash component of an IUL policy grows as a result of an index based on the performance of a benchmark financial index; specifically the S&P 500®. However, there are different indexes with different products. It’s common for the index performance to have an index cap as well as an index floor, usually with the floor being 0%. The safety comes from a Fixed Account that provides steady growth and from Indexed Account options that guarantee against market losses.
What is the Index Cap?
Maximum interest rate that is used in the calculation of the index credit.
What is the Index Floor?
Minimum interest rate that is used in the calculation of the index credit. The most common index floor is 0%.
What is an in Index participation rate?
The portion of the index change that is used in the calculation of the index credit. The most common participation rate is 100%.
Are premium payments tax deductible?
Is the death benefit income tax-free?
What is the s&P 500?
The Standard & Poor’s 500 Index (S&P 500) is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe.
How is Interest Determined?
The credited interest rate is the index change multiplied by the index participation rate. This calculated value is then subject to the index cap rate and index floor rate.
For example let’s assume at the beginning of the year that you have $100,000 allocated to an Index with a floor of 0%, a cap of 12% and a participation rate of 100%. At the end of that year if the Index increased by 15% then earned interest rate would be 12% because of the cap. In this scenario the interest credited would be $12,000 and your new value would be $120,000. Then, in the next year let’s assume the Index went down 10%. The earned interest would then be 0% because of the floor.
What are the benefits of an IUL?
Indexed Universal Life (IUL) insurance shares the coverage and premium flexibility of other universal life policies, but the crediting of interest is very unique. Indexed interest is linked to the performance of an external index such as the S&P 500. The cash value increases are linked to positive changes in the equity index.
What if the index were to go down? If the index stays flat or declines, you will still receive credited interest equal to the annual floor.
Indexed Universal Life insurance provides you the peace of mind of a death benefit protection, but also offers upside potential for your cash value accumulation which can be used towards many different financial needs such as income replacement, mortgage and other debts, supplemental college fund, and much more.
Given today’s economic realities and the awareness in knowing that taxes are likely to increase, this financial vehicle is more beneficial than ever before:
- Tax-free death benefit
- Tax-deferred accumulation
- Tax-free distributions