Curious about what an Indexed Universal Life (IUL) policy is and how it works?
Let’s break down the essentials of IULs, a type of permanent life insurance, to help you understand if it’s the right option for your financial planning.
Basic Overview of Life Insurance
To grasp what an IUL is, it’s crucial to first understand the basics of life insurance.
There are two primary types: temporary (or term) life insurance, which provides coverage for a specified period, and permanent life insurance, which covers you for your entire life as long as premiums are paid.
What Are IULs
1. Permanent Insurance and IULs
An Indexed Universal Life (IUL) policy falls under the category of permanent life insurance.
This means once you secure an IUL, the insurer promises to pay out a death benefit to your beneficiaries regardless of when you pass away, provided the policy remains active
2. How IULs Work
The unique feature of an IUL is its cash value component, which grows over time. The growth of this cash segment is tied to a stock market index, although it does not directly invest in the stock market.
Therefore, while you have the potential to earn more when the market performs well, your cash value does not decrease when the market fares poorly. However, it’s important to note that the interest credited is variable and not guaranteed.
3. Risk Considerations
Given its reliance on market performance, an IUL might not be suitable for everyone, particularly if you prefer guaranteed returns.
The policy’s effectiveness and benefits can also vary based on your age and the amount you contribute.
Frequently Asked Indexed Universal Life Insurance Questions
What exactly is an Indexed Universal Life Insurance policy?
An Indexed Universal Life (IUL) policy is a type of permanent life insurance that provides a death benefit to your beneficiaries and includes a cash value component that grows based on a specified stock market index.
How does the cash value in an IUL grow?
The cash value in an IUL grows based on the performance of a stock market index. When the market performs well, the cash value can increase with the credited interest, but it does not decrease during market downturns.
Is an IUL a good investment for everyone?
An IUL may not be ideal for everyone; its suitability depends on your financial goals, risk tolerance, and the amount you are able to invest. Those who are older or wish to invest less may find it less beneficial.
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