There’s a lot to love about indexed universal life insurance. It has the potential to grow your death benefit while providing you with some flexibility and control over your premiums. But it’s not perfect. In this blog post, Family First Life – Strong Tower & Hammer Lane Consultants will explore some of the pros and cons of IUL so you can decide if it’s right for you.
What is Indexed Universal Life Insurance?
It is a type of permanent life insurance that offers cash value accumulation, like whole life insurance, but with the added benefit of index-linked interest. It means that your cash value can potentially grow at a faster rate than a traditional whole life policy. But unlike other types of life insurance, IUL doesn’t have a guaranteed rate of return.
Before you run out and buy an indexed universal life policy, you should consider a few things.
Pros of IUL:
IUL insurance policies include several features that make them very attractive to consumers.
Universal life insurance policies promise lifelong protection. Your coverage will never terminate as long as you pay your premiums. This type of policy also gives you the flexibility to increase or decrease your death benefit. You can do this by changing the number of your premium payments.
IUL policies offer cash value growth linked to an index like the S&P 500 Index. It means that your cash value can potentially grow at a faster rate than it would with a traditional whole life policy.
Tax Advantage Growth:
You pay your insurance payments with after-tax dollars. As a result, IUL insurance policies have the edge over other insurance coverage and savings plans. The cash value increases on a tax-deferred basis, allowing for future gains.
Cons of IUL:
Before buying an indexed universal life insurance policy, be aware of some possible drawbacks.
Potential for No Return:
The IUL is linked to an equities index, which has certain advantages and carries some risk. The danger comes from market fluctuations. So, if the index falls, your policy will follow suit. Compared to a standard universal life insurance policy, IUL coverage is more prone to losses. Although, it is less risky than a variable life insurance plan, which invests in the stock market.
Caps on Gains:
Most IUL policies place a cap on how much your cash value can grow in a given year, even if the index is linked to an increase by more than that amount. The industry standard is around 12%, but some companies offer policies with higher caps. This is important to consider because even if the market has a banner year, you may not be able to participate in those gains fully.
IUL policies often come with high fees, taking a big bite out of your returns. An IUL policyholder can pay around three percent annually in mortality and expense charges fees. That’s why it’s so crucial to review a policy before you buy it carefully. Verify that you’re aware of all the charges and how they’ll influence your return on investment.
Contact us if you decide that indexed universal life insurance is right for you. Our Family First Life – Strong Tower & Hammer Lane Consultants team has over 50 years of combined experience helping families in Wichita Falls, TX secure the best life insurance products.