is a type of permanent life insurance. It simply means that it
has a cash value component in addition to a death benefit. The money in your cash value
account can earn interest based on a stock market index chosen by your insurer. IUL works
similarly to universal life policies, except in the way it builds cash value.
Let’s talk about the benefits and drawbacks of IUL.
● Cash Value Insurance Policy. It is how the IUL is commonly pitched to prospects. It
benefits from the market’s gains tax free and doesn’t worry about the risk of loss during
● No Social Security Impact. Social Security benefits may be an important source of
income in retirement. Taking benefits ahead of your full retirement age can shrink your
benefit amount as can working while receiving benefits. Cash value accumulation from
an IUL insurance policy wouldn’t count toward the earnings thresholds, nor would any
loan amounts that you borrow.
● Greater Flexibility. IUL Insurance can offer flexibility when putting together a policy
that’s designed to meet your investment goals.
● Higher Return Potential. These policies leverage call options to gain upside exposure
to equity indexes without the risk of losses, while whole life insurance policies and fixed
universal life insurance policies provide only a small interest rate that may not even be
guaranteed. The IUL insurance policy determines its annual return on how well its
underlying index performs.
● Death Benefit. IUL insurance, like other types of life insurance, can provide a death
benefit for you and your loved ones. This money can be used to pay funeral and burial
expenses. This fund can also be used to cover outstanding debts such as a mortgage or
co-signed student loans, fund college costs for children, or simply pay for everyday living
expenses. IUL insurance death benefit can be passed on to your beneficiaries tax-free.
● Access to Cash Value. You can only borrow up to the amount of cash value in the
policy and the money you borrow doesn’t actually come from your cash value. The
money comes from the insurance company and your cash value serves as a collateral.
Even though you don’t have to repay the loan, it’s not free money. You are charged
interest on the loan and you must pay at least the interest to avoid huge interest and will
result in reducing your cash value.
● No Guarantees. IUL policies offer returns based on an index and have variable
premiums over time unlike whale life insurances that include guaranteed interest rate
with predictable premium amounts throughout the life of the policy.
● Caps on Returns. Insurance companies often set maximum participation rates of less
than 100% and as low as 25% in some cases. In addition, returns on equity indexes are
often capped at certain amounts during good years.