Who Should Buy IUL Insurance?

Key Takeaway

Indexed universal life insurance can be a more flexible, permanent life insurance option for high-net-worth individuals who may want to lower their taxable income. These policies are tied to a stock market index, which may not make them ideal for retirement savings options.

IUL Index Universal Life Insurance Cash Value Savings Chart

If you are considering indexed universal life insurance, it may be a great fit for you and your beneficiaries, but there are also some downsides to consider. In this article, we’ll explore indexed universal life insurance so you can expand your understanding of life insurance, and decide if this product is the best fit for you and your family.

What Is IUL Insurance?

Indexed universal life insurance (IUL) is a form of permanent life insurance. Unlike term life insurance, permanent life insurance policies are typically designed to last throughout the duration of the policyholder’s lifetime‒as long as the premiums are paid in full and on time. 

IUL policies‒like other forms of permanent life insurance‒generally have a cash value component in addition to the death benefit offered. These policies can allow for that cash value amount to be tied to the performance of a stock or bond index. This differentiates these products from other universal life insurance products, because other universal life products are generally based on but not tied to an underlying index.

Just like other universal insurance products, though, IULs can allow policyholders the flexibility they seek. This is because policyholders may be able to pull funds from the cash value account to lower or fully pay for their monthly premiums without lowering the death benefit.

The Pros of IUL Insurance

There are several benefits of an IUL policy, including:

Cash Value Growth

Because this type of product is usually designed to remain intact throughout your entire life, this can create a potential for increased growth in your cash value account. The younger you are when you start this policy, the more potential your cash value account has. 

Additionally, the cash value account is tied to a stock market index account. As this amount grows, the more flexibility you can have‒all without impacting your death benefit, if you plan accordingly.

Lifelong Coverage

Term life insurance policies are designed to offer coverage over a set period of time, which usually doesn’t cover the insured over their entire life. Group life insurance through your employer, for example, is typically a term life insurance plan that is contingent on your employment. Get laid off or switch jobs? Your coverage will likely end. But with an IUL policy, you are covered for as long as you pay your premiums on time.

Better Flexibility

With IUL policies, you may be able to enjoy more flexibility with your policy. Along with the ability to tap into your cash value account to help pay your premiums, you may also be able to use your cash value account for available free cash flow.

IUL Insurance: Who Benefits the Most?

While there are many benefits to IUL policies, they may not be the best fit for everyone. Because the cash value account on the policy is tied to an index‒think the S&P 500 or the Nasdaq composite‒they can be more volatile than other universal policies. So, how could that impact you?

If you’re hoping to use your IUL policy as a retirement savings option, this may not be the best fit for you. This is because there can be higher fees and premiums compared to other retirement savings options, like a 401(k). This means IUL insurance may be a better fit for high-net-worth individuals looking for a flexible life insurance option that can lower their taxable income.

In Conclusion

IUL products are usually ideal for high-net-worth individuals because the cash value account is tied to a stock market index. This can make it a riskier choice for a retirement savings option, but these policies can allow for greater flexibility, permanent coverage, and opportunities for cash value growth.

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

A.M. Best's 15 ratings are a measure of claims-paying ability and range from A++ (Superior) to F (in Liquidation). Ratings are current as of January 25, 2024 and subject to change at any time. While ratings can be objective indicators of an insurance company's financial strength and can provide a relative measure to help select among insurance companies, they are not guarantees of the future financial strength and/or claims-paying ability of a company and do not apply to any underlying variable portfolios. The insurance agency from which a policy is purchased, and any affiliates of those entities, make no representations regarding the quality of the analysis conducted by the rating agencies. The rating agencies are not affiliated with the above-mentioned entities, nor are these entities involved in any rating agency's analysis of the insurance companies.

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