Understanding Indexed Universal Life Insurance And Its Benefits
Life insurance is essential to ensure financial security in case of unexpected events. Universal life insurance offers flexible coverage and investment options. Under the universal life insurance policy, the policyholder pays a premium. A part of that premium goes toward the protection of the policyholder, and the remaining part goes towards building a cash value. Here's a closer look into the world of universal life insurance and its sub-type, indexed universal life insurance.
What Is Universal Life Insurance?
Universal life insurance is permanent life insurance, meaning it covers the policyholder for their whole life, unlike term life insurance, which provides coverage for a specific period. Universal life policies invest a part of your premiums into a policy cash value account. The cash value account grows tax-deferred at market interest rates and allows you to borrow against it in times of financial difficulties if needed. In other words, the policy provides insurance protection and an investment vehicle that can benefit the insured and their beneficiaries for the long term.
What Is Indexed Universal Life Insurance?
Indexed universal life insurance (IUL) is a sub-type of universal life insurance. It offers additional investment opportunities by allowing the policyholder to participate in the stock market's gains. The cash value account earns interest tied to a stock market, like the S&P 500, allowing the cash value to grow even faster. However, should the market index perform poorly, the policyholder is still guaranteed a minimum interest rate, preventing them from suffering too much of a financial loss. By choosing an indexed universal life insurance policy, you can participate in the stock market's gains while still having protection against market loss that a traditional investment account may not offer.
What Are the Benefits of Indexed Universal Life Insurance?
The benefits of IUL extend beyond its flexibility and potential return on the stock market, including:
- Tax-free Death Benefit. Indexed universal life insurance offers a tax-free death benefit that can help support your beneficiaries. The policy's death benefit is paid out tax-free to the beneficiary, which is typically not the case for other investment accounts.
- Tax-Free Withdrawals. Unlike traditional investments, the policyholder can withdraw funds from their policy's cash value account without paying income tax or an early withdrawal penalty.
- Flexibility. Indexed universal life insurance offers policyholders the flexibility to adjust their coverage and premium payments based on their current life stage and financial standing. As circumstances change, it is possible to adjust the policy to fit the new situation while still ensuring maximum benefits.
Indexed universal life insurance offers policyholders the dual benefits of protection and investment opportunity. With an Indexed universal life Insurance policy, you have the potential to create long-term wealth, tax-free distributions, and tax-free death benefits for your beneficiaries, making it an investment worth considering.