Indexed Universal Life Insurance:

What is it?

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Indexed universal life insurance (IUL) is an insurance policy with many benefits. Certainly, IUL’s provide a death benefit. However, this type of insurance can also be useful for retirees in several ways. First, policyholders may earn a rate of return on their max funded IUL. This is also true for other universal insurance policies, but IUL’s have an advantage. For example, an IUL may be a way to protect your money. In addition, you may see a reasonable rate of return over time with an IUL because the earnings link to an index. Hence, the name of the product is indexed universal life insurance. Also, retirees may be able to have a tax-free* retirement income source by using an IUL.

An IUL may be part of an overall retirement strategy. Here’s how it works. In exchange for your premium, an insurance company gives you a life insurance policy. Typically, the IUL is “max funded”, meaning that the total life insurance premium is paid upfront. In this way, the insurance company protects your cash. The money in your IUL is not at risk in the market. Alternatively, your policy dollars link to and index. Therefore, retirees with IUL’s may be able to actually earn a rate of return when that particular index is up. Conversely, you don’t lose money when the index is down. Regardless of market conditions, an IUL is a possible way to protect your money.

How does

Indexed Universal Life Work?

Basically, when you pay your full premium to fund an IUL, some of that money goes to paying for life insurance coverage. After that coverage, the rest of the money, minus fees, is your cash value. This value may be linked to an index, and therefore, may earn an interest rate. Although the cash value may earn interest, it is not actually reliant on the stock market. For instance, the S&P 500 index may yield a similar rate of return to that of S&P 500 stocks. However, the money isn’t directly invested there. Therefore, if those stocks decline in value, your IUL cash value is unaffected. On the other hand, if the index goes up, you may see an increase in your IUL value.

Also, you may have the option to chose multiple indexes for your IUL. This allows you to spread out the potential return on the cash value of your IUL, instead of relying on just one index. For example, some of your IUL cash value may be earning a fixed rate of interest. A different index may provide an alternate rate of return. Yet a third index may connect to provide another result. Due to the many possibilities, retirees should learn all the options available.

Are there

IUL Living Benefits?

Indexed universal life insurance isn’t just about leaving money for your loved ones when you pass away. In fact, there are several additional benefits that may apply. First, this product provides you with some flexibility. Keep in mind that an IUL is a product offered by an insurance company. Therefore, tax laws about it are different than those of other retirement tools such as securities, 401(k) or IRA accounts. For instance, some retirement options have contribution and income limits, as well as restrictions on income.

An IUL, however, does not have any of these. In addition, IUL’s do not have a required minimum distribution (RMD) where you must take out the money at regular intervals or at a certain age. Conversely, there are RMD requirements for other accounts where account owners must withdraw by age 70. Also, unlike other types of financial tools, IUL’s have no fees if you decide to withdraw your cash value earlier than age 59 1/2.

Safety is another factor retirees use when considering an IUL. Since your value remains constant no matter what happens in the stock market, it is not at risk. Instead, your money grows based on an index. It’s possible to have some gains when the index is up. However, you don’t lose your money when the index is down. Protection helps give retirees some peace of mind. Obviously, no one really knows what will happen in the stock market. Therefore, an IUL may be part of your overall safety strategy in retirement.

Another key benefit: you can fund your policy all at once. Perhaps you have already maxed out your retirement accounts but still want to put money away. An IUL may provide a way to keep your money safe as well as providing a future income, tax-free.* Additionally, you may be able to protect your gains as your cash value grows. Some retirees also like the fact that they don’t have to take their money out. Instead, they can take out money when they need it. Or, they may decide to simply keep in there as another retirement savings account option.

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