What is AN IUL?
Indexed Universal Life Insurance:
What is an IUL?
An IUL stands for “indexed universal life” insurance policy. Like all life insurance, IUL’s provide a death benefit. However, an Index Universal Life policy is a type of universal life insurance that offers more than just a death benefit. One type is a fixed rate, which is subject to inflation. Another type is a variable rate, which is invested in the stock market, so it has too much risk. With an Indexed Universal Life your principal is guaranteed,* while your interest rate is based on the market. Because of this, the IUL can earn a reasonable rate of return,** and help retirees earn retirement income, tax-free*. In addition, beneficiaries get their inheritance without having to go through probate.
Many people use an IUL as part of their financial strategy in retirement. With an IUL, the insurance company holds your money. Therefore, your cash value has protection. In fact, with this product, your money is not actually in the market. Instead, you can choose to have your rate of return linked to an index. In this way, IUL owners can earn a reasonable rate of return** when their index is up. Yet, when the index is down, they don’t lose their cash value. No matter what happens in the market, an IUL provides protection for the money you put into it.
How Does an IUL Work?
Essentially, when you fund an IUL, part of your premium pays for life insurance coverage. The rest (minus costs), is your cash value. This cash value may earn an interest rate, linked to an index. Note: an index may follow the performance of a particular market index, but your cash value isn’t in the stock market. For example, the S&P 500 index would provide a rate of return along the same line as those S&P 500 stocks. However, the index is not investing directly in the market. If your IUL’s index were to go up, then your policy may be credited with a reasonable rate of return over time. If, however, the market goes down, your cash value does not. This is because your principal cash value is never invested directly in the market.
Additionally, some policies allow you to choose many indexes, instead of just one. Therefore, it is possible to actually “diversify” within your IUL. For instance, you may choose to have a portion of your available cash value earning a fixed rate of interest. Another part of your money may be earning interest from a different index. And, the third chunk of your money could be linking to a different index. Because of all the possibilities, it is important to learn about all the options available to you.
Learn More About IUL's
Although Indexed Universal Life policies can seem like a complex topic, Messina's Wealth Management is here to help. Reach out to learn more and set up a no-obligation appointment. We will answer any questions you have in simple, easy to understand terms.
Living Benefits of
Indexed Universal Life Insurance
In addition to simply providing a death benefit, IUL’s can help retirees in many ways. First, an Indexed Universal Life insurance policy offers some additional flexibility over some other financial vehicles. Remember, an IUL is an insurance product. Therefore, the retirement and tax laws around it are different than policies that deal in securities, including 401(k) or IRA accounts. For example, IUL’s have no contribution limits, no income limits, and no income restrictions. Also, unlike some retirement accounts, IUL’s have no required minimum distributions (RMD’s) or fines for withdrawing money earlier than age 59 1/2.
Another upside to an IUL: it’s pretty safe. Your cash value stays the same, even if there are losses in the market. Plus, your money grows based on a stock market index, instead of the market itself. So, you may see some accumulation when the index is up, but you don’t lose when the index is down. More importantly, you lock in your earnings, so they are not at risk. For many retirees, this protection gives them peace of mind. Especially because no one ever really knows what may happen in the stock market.
IUL’s have other benefits, too. For example, you can fund your policy with one lump sum of money. Or, you can fund it over time. Additionally, because your cash-value is liquid you can access it for income, without paying income tax. Also, your cash value accumulation happens income tax-free.* What may be very important to you is that your death benefit is accessible while you are alive, tax-free* to cover long-term care costs. There are many options, so be sure to chat with us about which ones may be right for you.
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Of course, IUL’s also give policy holders a way to protect their legacy. For instance, the money left for your beneficiaries is generally much more than you initially put into the policy. Plus, the amount available as a death benefit may increase with time. Because it is a life insurance policy benefit, your loved ones won’t need to go through probate to have access to your money. Additionally, the income your family receives from your IUL is not taxable and avoids probate.
Looking to learn more about IULs?
Attend one of our sessions or schedule an appointment. Let’s find out if Indexed Universal Life is right for you.
**Our products offer a reasonable rate of return, over time.