Life insurance is one of the most important purchases that you’ll ever make for the future of your family. It’s one of the few ways that you can ensure your family’s protection, regardless of what happens to you.
When you’re looking to get life insurance, there are dozens of different kinds of policies that you’ll have to choose from. One of those kinds of life insurance is indexed universal life. Deciding to use IUL help supplement your 401k could be a smart move. Plans can be complex, and there are questions surrounding these types of life insurance policies.
When you’re looking to get life insurance coverage for your family, it’s vital that you get the best plan to fit your needs. You need to understand each kind of plan and all the advantages of these policies.
Although a simple search on Google can help you determine the Pros and Cons on any product or service, reading only the bold listing headlines on the first page of the search results can lead to confusion. Is indexed universal life a good investment? You must remember that typically every article posted about investment advice is a summarized opinion and likely not supported by data which is typically missing from the article. Investment professionals are likely to be influenced by success stories based on commissions and fees earned by other professionals rather than interest earned or lost by policyholders.
When I perform a Google search of “is indexed universal life a good investment”, the results on the first page (the only page usually reviewed by the searcher) return ten articles (excluding ads) that are split almost 50/50 for and against. Typically frustrated by the returned search results, the reader simply must begin reading all the articles in order to make an informed decision. Because there are so many different types of plans to choose from, it can be difficult to choose between all of the types of plans. You should look at indexed universal life insurance plans to see if they fit your needs and will give you the life insurance protection that your family deserves. This is an attempt to lighten your reading load and bring you to a legitimate conclusion.
Is Indexed Universal Life A Good Investment?
About the Product
Indexed Universal Life (IUL) is about a death benefit and a living benefit. Certainly, the death benefit is important since the investor wishes to use it as a legacy to surviving family members and loved ones. The living benefit is just as important because when the IUL is used to support your retirement income, the living benefit must be sufficient to allow you to live the kind of retirement life you have planned and worked so hard to provide.
Although similar to traditional Universal Life Insurance, the IUL contains a method of investing that can deliver sufficient returns to supplement your retirement plan. Whereas a traditional UL earns interest on a fixed-rate basis, the IUL earns interest on an indexed-rate basis. There are three very important options available to the IUL policyholder:
- The policyholder can select from various equity accounts in which to invest.
- The policyholder can allocate cash to either a fixed account or an equity index account.
- The policyholder will have access to invest in multiple indexes (g., S&P 500, NASDAQ)
The amount of cash available to invest is based on the periodic premium minus the cost of insurance and administrative fees, but the policy is flexible so that, if elected, premiums can be increased as the cost of insurance increased over the years.
Now for the Pros
- Tax-deferred Growth –Since periodic premiums are paid using after-tax dollars, the growth of the cash value account is on a tax-deferred basis. The death benefit is also paid tax-free to beneficiaries. Access to the cash account by way of policy loans or partial surrender is also on a tax-free basis.
- No Contribution Limit – There is no limit on contributions you make to your IUL, which means almost every dollar invested can earn interest on a tax-deferred basis.
- Market Access – By allowing you to access several market indices, your expectation of long-term growth is significantly higher than with traditional universal life plans.
- The Annual Reset – This little gem is as good as it gets. Since your account is locked in each year, losses in subsequent years will not affect the account gains achieved in previous years. Try getting this perk with a mutual fund, won’t happen.
- No Social Security Trigger – Although annually reported earnings from a mutual fund may cause a retired couple’s income to exceed the allowable threshold for Social Security Benefits, the cash account in the IUL remains tax-deferred and can be taken as needed via tax-free loans.
- Lower Risk – The risk with an IUL remains lower than stock investing since the cash value will not decrease if the target index fails.
Yes, There are Cons
- Dividends Don’t Count – Insurers only pay based on the return of the index and not the dividends which may be included. For example, if the S&P 500 index fund returns 9%, but 2% are dividends, your account will be credited 7% rather than 9%.
- Increased Policy Charges – Although this rarely happens, the insurer does retain the right to increase policy charges if they choose to do so. This has happened only a few times over the last six decades and was a result of the widespread outbreak of disease.
- CAP Changes – Insurers have been known to change the earnings Cap on occasion, either up or down. These changes are typically mitigated by the expectation of customers surrendering policies in mass as a result.
The Bottom Line
So then, is Indexed Universal Life a good investment? After comparing Pros and Cons, my answer would be a resounding “Yes”. We should always consider, however, that not every good investment is good for everybody. Choices should be made based on the individual’s needs and expectations, and long or short term goals. Don’t just listen to the advice of someone with a big name such as life insurance advice by Dave Ramsey or Suze Orman with life insurance advice, call us and get personalized quotes and help for your specific needs!
Alternatives
Once you’ve looked at IUL plans, you may decide that they don’t fit the needs of yourself and your family. Luckily, there are dozens of other life insurance options that you can pick from to decide which one is going to work best for you.
If you’re looking to get the most affordable life insurance policy available, the best choice is a term life insurance plan. These plans are purchased with a pre-determined length of effectiveness. After that point, the policy is no longer in force and you will have to reapply for life insurance coverage. Because term life insurance plans have an expiration date, they are going to be cheaper than forms of life insurance coverage.
You can purchase these plans in a variety of different lengths. Each insurance company sells these plans in different lengths, anywhere from two years to thirty years. You can purchase a plan that meets the needs for your family. It’s vital that you get the best plan to meet your life insurance needs.
When you’re looking to get life insurance, one of the most important decisions you can make is to ensure that you’re getting enough coverage for your family. Not having enough life insurance is one of the worst mistakes that you can make.
When you’re calculating your life insurance needs. There are several different factors that you should consider, everything from your debts to your final expenses. Make sure that you’re getting enough coverage for your loved ones. If you were to pass away, not having life insurance could leave your family with a massive amount of debt. This can make an already difficult situation a thousand times worse.
Now that you know that the IUL is a good investment, it’s time take a look at what an indexed UL policy looks like for you. We can help you get down to the nitty-gritty so that you can make an informed decision. The first and most important step is to request a quote with the calculator on this page or call us at 1-800-712-8519.
Life insurance is one of the most important safety nets that you can buy for your loved ones. You never know what’s going to happen tomorrow, which means that you shouldn’t wait any longer to get the insurance protection that your family deserves.
We know that finding life insurance for your family can be a long and difficult process, but it doesn’t have to be. Our agents can make the process as quick and easy as possible. Don’t wait any longer.
Frequently Asked Questions
What are some features of Indexed Universal Life insurance?
Indexed Universal Life (IUL) is about a death benefit and a living benefit. Certainly, the death benefit is important since the investor wishes to use it as a legacy to surviving family members and loved ones. The living benefit is just as important because when the IUL is used to support your retirement income, the living benefit must be sufficient enough to allow you to live the kind of retirement life you have planned and worked so hard to provide.
What are the PROS of Indexed Universal Life insurance?
Tax deferred growth, no contribution limit, market access, annual reset to protect gains, no social security trigger, and lower risk to name a few! An independent life insurance agent can evaluate your situation and provide you with options.
What are the CONS of Indexed Universal Life insurance?
Dividends do not count, increased policy charges, and CAP changes are a few. A independent life insurance agent with IUL knowledge can discuss your options with you.
