Life Insurance

What is an IUL?

What is Indexed Universal Life Insurance

What is an indexed universal life insurance policy?

Indexed universal life, or IUL, insurance, comes with a number of benefits. While, like any other life insurance product, it comes with a death benefit, it also has a number of features that can help you while you are still alive. First, you may earn a rate of return on your max-funded IUL. This is because an IUL gains interest based on the performance of an index (hence the term “indexed” universal life.)

Secondly, an IUL may be a great way to protect your money. And, because it’s a life insurance product, it may come with certain tax benefits that traditional savings accounts do not.

An IUL is typically “max-funded.” This means that the total life insurance premium is paid all upfront. The policy is linked to an external index, but the money is not invested in the stock market. This provides a level of safety that many other financial vehicles cannot, making an IUL highly beneficial.

Basically, when you pay your full premium to fund an IUL, some of that money goes towards paying for life insurance coverage. After that coverage, including fees, the rest of your money is your cash value. You may earn an interest rate on this money, based on an index or indexes. However, it’s an important diction that an IUL is not an investment. Now, let’s explore some of the benefits of indexed universal life insurance.

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Living Benefits

While leaving money for your loved ones is the primary function of life insurance, an IUL comes with more benefits that can help you while you’re still alive.

As we mentioned previously, tax laws function differently for IULs. Furthermore, they don’t come with the same contribution limits as traditional retirement plans like IRAs or 401(K)s.

Furthermore, an IUL doesn’t come with a required minimum distribution (RMD) or a penalty for withdrawing money early. You can take it out whenever you need it. Or, you may choose to not withdraw it at all.

And, as we talked about before, IULs offer a safe* place to keep your money. Your value remains consistent, even in bad economic conditions. And, another key benefit? You can fund your policy all at once. If you have already maxed out your retirement accounts, but still want to save additional money, an IUL may be a great option for you.

Legacy Benefits

There’s no way to predict how taxes will be in the future. Additionally, you don’t know how those future changes will impact your money. Thankfully, there are ways to prepare. An IUL may be one of these ways. With an IUL policy, there is no tax on your beneficiaries, and probate court isn’t required. This, in addition to how the death benefit is much larger than the amount you initially contributed, makes an IUL an option very much worth considering. In terms of the tax rules on these products, remember to consult a qualified tax advisor for more information.

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