What Is Indexed Universal Life (IUL) Insurance?
Cash-value life insurance (variable, indexed, or fixed) are some of the most complex financial products in the market today. Many different things factor into a properly structured indexed universal life insurance policy. Client health ratings, insurance carrier solvency, cost and fees in the policy, index options, persistency bonuses, loan rates, product features, rider options, term insurance riders, and so much more. As with many other things in life, good things don't come easy. While indexed universal life insurance policies are rather complicated, there are many advantages associated with this type of insurance product.
One of the most important benefits of using indexed universal life (IUL) is the tax advantage of this type of investment. The money contributed to the policy is usually post-tax money. But any growth associated to the cash value of the policy based on the index allocations are tax-deferred. The money can be accessed via a tax-free loan while the insured is alive or a tax-free death benefit when the insured passes away. In many ways, this is similar to making a Roth IRA contribution except for the fact that the contributions and distributions have a lot less restrictions associated.
Another important benefit of and IUL is the fact that the cash-value can not be reduced by negative index performance. The cash-value CAN be reduced by fees, expenses, loan interest, cost of insurance, premium loads, and many other charges. However, one of things that will not cause the cash value to be reduced is the negative performance of the index allocation.
It is important to be educated on all the pros and cons of putting money into and IUL policy before purchasing a contract. Also, the right financial advisor can really help in exploring the different options, applying for different policies, navigating health underwriting with the carriers, and maintaining the policy after it is issued. Nonetheless, these insurance policies can be very advantageous if they are properly set up and used.
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