Benefits of IUL

With so many types of life insurance on the market, navigating the different products can be overwhelming. Some individuals purchase life insurance simply to provide a death benefit to their loved ones, while others leverage their policies to plan for retirement or tax-free capital gains.

In this article, we’ll address the key benefits of indexed universal life insurance (IUL) to help you determine if you should buy IUL insurance.

IULs are a form of permanent life insurance, meaning your policy should cover you as long as you continue to pay your monthly premiums. Like other universal life insurance products, IULs come with a cash value account. This cash value account is tied to an equity index, rather than a fixed interest rate, which can mean there is an increased potential for growth in that cash value account.

Once the cash value account accumulates a certain amount, the policyholder may be able to access those funds and put them towards their monthly life insurance premiums, effectively lowering their out-of-pocket payments each month. However, keep an eye on that account. If your cash value account runs out of funds and you miss your premium payments, your coverage may lapse.

IUL products can come with a variety of benefits, including:

Flexible Options

These products can offer greater flexibility when you are creating a policy that coincides with your investment goals and needs. With an IUL, you can decide how much risk you want to take on the market, choose from a range of riders to customize your policy, and adjust your death benefits as needed.

Increased Potential On Cash Value Returns

IUL policies can leverage call options‒financial contracts that give buyers the right to buy a stock, bond, or other asset at a certain price within a certain period‒to gain positive exposure to equity indexes without the risk of losses. The downside? Gains aren’t guaranteed.

The annual return you see with your IUL policy will likely depend on how well its tied index performs. Certain insurers may offer a guaranteed minimum return on your investments, which can provide you with a safety net.

No Social Security Impact

If you are hoping to use your IUL as a way to supplement your retirement savings, you may be in luck. Finding retirement savings options that do not impact your Social Security benefits can be tricky, but an IUL may be the right option for you. With Social Security, you’re typically only allowed to earn so much per year before you reach the full retirement age before your Social Security benefits are reduced.

With an IUL, your cash value accumulation won’t count towards your earnings. Any loans you take out against your cash value won’t count, either. This means you may be able to take a loan against your policy to supplement your Social Security benefits without impacting that benefit amount.

Tax-Free Capital Gains

If you are an IUL policyholder, you generally do not have to pay capital gains on the increase in your cash value account over time. An exception to this is if you abandon the policy before it matures.

Additionally, the loans you may take against your IUL policy’s cash value account may also be tax-free. This makes these policies stand out, because you can withdraw from them without triggering penalties or taxes, unlike with IRA or 401(k) early withdrawals.

Tax-Free Death Benefit

Like all other types of life insurance, IULs come with a death benefit that is to be paid out to your beneficiaries upon your passing. This benefit can be used to help pay for costly end-of-life expenses or help cover outstanding debts. This death benefit is typically tax-free, as well.

There are many benefits of IUL policies, but the best way to know if it’s the right policy for you is to consult with an insurance agent. Looking for other insurance insights? Check out our post on what group universal life insurance is!