Indexed Universal Life Insurance

What Is Indexed Universal Life Insurance?

Indexed Universal Life Insurance is a type of permanent insurance similar to Universal Life, except the funds are following the stock market index, and credits interest according to the percentage of gains in the market. The money in an IUL isn’t invested in the stock market, rather it is being credited accordingly. To look at a graph of the market, the sight of many ups and downs appears, as you follow it. Many fortunes being made and lost in the process, but on a graph of an Indexed Universal Life, it looks like a set of stairs. When the market is up, the value increases, but when it’s down, the IUL goes horizontal, or slightly up. This is because in a down market, the IUL goes to zero percent, or 1% which ever is outlined in the IUL. This allows the inverters in an Index Universal Life Policy, will never lose their money. The expression for this is, “zero is your hero”.

The following graph shows an example of how an IUL and an Indexed Annuity work to credit the owner of the policy. Over a 19 year period, the Indexed Annuity, and Indexed Universal Life turned $100,000 into $264,853, while the stock market delivered $240,169 from that same $100,000 investment during the the same amount of time, along with a lot of heartache from the ups and downs of the market. Notice the stair steps of the green line compared with the up and down red line. This means your money is being kept safe.

The Indexed Universal Life provides the owner of the policy a tax free lifetime retirement income every year until death. For the individual that is destined to rely on Social Security, it provides a welcome additional income, provided it was opened early in life. The draw back to the IUL is the fact that if you are older, say over 45-50, you will have to over fund the policy to reap the benefit of a nice income later on when you retire.

The IUL also provides a death benefit, that is determined by the amount of insurance the owner purchases. It also has cash value that can be used for things like college tuition, a mortgage, or to start a business.

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