• IUL can provide higher upside growth potential compared to whole life and traditional universal life without the risks of variable life insurance.
• The cash value portion of the policy grows on a tax-deferred basis and cash values can be accessed through policy loans or withdrawals, which receive preferential tax treatment under Internal Revenue codes that have been around for decades.
• These policies are flexible and offer a host of different riders you could add based on your own preferences and personal situation.
• Many IUL products offered today contain several “living benefits,” which can be accelerated due to a chronic, critical or terminal illness.
• Newer underwriting enhancements allow you to apply and potentially qualify for up to $2 million of coverage without any exams, fluids or labs.

Cons

• You must be able to qualify medically for this life insurance coverage.
• When you link your interest rate performance to an outside index, there’s always a chance the index could go down in any given year. With IUL, you don’t earn interest unless the index goes up. As such, you could earn no interest in a negative year (unless you have a portion allocated to a fixed account).
• There is a cap or limit on your accumulation upside, which will prevent you from fully participating in the upside of the stock market .
• Guarantees can vary from one insurance company and one IUL policy to another.
• Not every licensed insurance agent or financial advisor understands how to properly structure an IUL policy for optimal performance or how to truly compare IUL products.

As the policyholder, you’d be able to choose what portion of your premiums get allocated to the fixed account or the indexed account strategy. Some people like to blend the two, and a licensed agent could show you some examples to provide a visual representation of what these differences could look like.

Indexed Universal Life (IUL) indexed crediting methods also have a participation rate. The participation rate influences how much your cash value can grow from year to year.

For example, if the market index goes up by 10%, and your participation rate is 75%, and you have $10,000 in your cash value account, the basic formula to calculate the credit to your account would be $10,000 x .10 x 75%, or $1,000 x 0.75, which would equal $750, less any charges, expenses or fees.

Indexed Universal Life insurance can be quite complex, so be sure to get help and advice from a licensed professional with a good working knowledge of this type of life insurance. We can connect you with an experienced insurance representative who will answer your questions and explain your options.