Policy Types

Understanding Indexed Universal Life Insurance?

People often consider Indexed Universal Life, a type of permanent* life insurance, when they're looking for the potential of cash value in addition to life insurance protection. Here's how it works:

What is Indexed Universal Life Insurance?

Today, many people are looking at the value of permanent life insurance with its ability to provide long-term security along with cash value. As such, indexed universal life (IUL) has become a popular choice in providing permanent life insurance protection, and an even greater potential for growth through indexing of interest credits.

How it works

Like other types of permanent life insurance, the premium payments you make to your IUL policy have the potential to earn interest and grow the cash value of your policy. However, what makes IUL different is the way interest is credited to your policy. In addition to offering a traditional declared interest rate, IUL offers the opportunity to earn interest that is linked to the performance of a selected choice of market indexes.

When the linked index performs well, your cash value builds at a faster rate, earning you more money that can increase your cash value. In contrast, if the index doesn't do well, your cash value will accumulate at a slower rate. The amounts credited to the cash value in your IUL grow tax-deferred, and may be used to pay insurance premiums, providing the flexibility to reduce or even stop making out-of-pocket premiums payments as long as the minimum premium payment is being met.

Flexibility for greater growth

As with a regular universal life insurance policy (UL), IUL allows for a flexible premium. This means you can choose to contribute more to your policy in order to help you build up your cash value even faster. However, it's important to note that many IUL policies have policy caps, whereby you're allowed to earn only a maximum amount of indexed interest credits per year. This means you'll have a limit on how much you can earn even if the index does extremely well.

A guaranteed credit

Most IUL policies come with a guarantee that you will be credited a certain amount during a given time period - regardless of how the market performs. So if the index goes down in a year, your cash value won't. Granted, this could be as low as one percent (or just a guarantee of floor protection so you don't lose money), but nonetheless, it's an assurance that you won't lose your cash value due to decreases in the index. It's important to note that the account value, any policy loans or surrenders may be subject to policy charges, surrender charges, transaction fees, and may reduce the cash value and death benefits of your policy.

 

An IUL policy can be a good way to provide your loved ones with the protection of a permanent life insurance policy along with the potential to build your tax-deferred savings and protecting your cash value from market losses.

*As long as required premium payments are timely made.

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Index Universal Life

Are you considering permanent life insurance? In this article, you can learn about indexed universal life insurance policies. What is indexed universal life insurance? Indexed universal life allows the ability to provide long-term security with cash value enabling greater growth potential. It's important to know there are limitations and factors that can affect that value of your policy. Indexed universal life policies can be a good way to protect your family. IULs can allow you to protect your family while also building tax-deferred savings and taking control of your policy. For more information, visit our learning center.


All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries.

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