Indexed Universal Life (IUL) insurance is a type of permanent life insurance that offers flexible premiums, lifelong protection, and the ability to accumulate cash value based on the performance of a stock market index such as the S&P 500.
It’s a powerful blend of life insurance protection and potential tax-advantaged growth, making it a unique option for long-term financial planning.
How Does an IUL Work?
An IUL provides a death benefit to your loved ones and builds cash value over time. Unlike traditional whole life policies, the cash value in an IUL grows based on the performance of a selected stock market index, not a fixed interest rate.
Here’s how it works:
- You choose one or more market indexes to track
- Your cash value can grow when the index performs well (up to a cap)
- Your principal is protected with a guaranteed minimum interest floor, so even if the market goes down, your cash value won’t decline due to poor market performance
You can also access your cash value through policy loans or withdrawals to supplement retirement, fund a major purchase, or cover an emergency.
Benefits of Indexed Universal Life Insurance
- Lifelong Coverage: Your policy stays in force as long as premiums are paid
- lexible Premiums & Death Benefit: You can adjust as your needs and finances change
- Market-Linked Growth: Gain potential from market performance without risking losses
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Tax Advantages:
• Tax-deferred cash value growth
• Tax-free policy loans (if structured properly)
• Tax-free death benefit to beneficiaries - Retirement Income Strategy: Access your cash value later in life to supplement other income sources
Who Might Benefit from an IUL Policy?
An IUL policy can be a good fit if you:
- Want permanent life insurance coverage
- Are interested in building wealth within your life insurance policy
- Need flexibility with your premiums or death benefit over time
- Are planning for retirement and looking for tax-advantaged income options
Prefer market exposure with downside protection
Important Considerations
While IUL offers many advantages, it’s important to understand:
- Caps and participation rates limit how much of the index growth you benefit from
- Policy performance depends on proper funding—underfunded policies may lapse
- Loans and withdrawals can reduce the death benefit and cash value
As with any financial product, IULs require careful planning and professional guidance.