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What is IUL?

Life insurance products are meant to provide policyholders with long-term coverage. A perfect example of such insurance products is the indexed universal life insurance policy. IUL policies consist of a death value component and a cash value component, and it is considered 'universal' due to its flexibility when it comes to premium payments.

 The insurance contract allows clients to alter policy components depending on their specific needs.  The fact that the policy has a cash value fund means that it is not a regular life insurance policy. According to indexed universal life insurance reviews, the IUL policy is good for long-term growth.

 As mentioned earlier, the policy market indices determine the policy returns. One of the most notable indexes is the S&P 500. The cash value credit “cap” is set by the insurance company, and only a good performance by the underlying index guarantees a positive return.

 However, it is important to point out that the account retains its value even when there are zero returns. Cash value funds are typically deposited in a fixed account option to generate interest independent of the market gain.

How the plan works

The crediting method used by the insurance company has an impact on the final returns. In most cases, the IUL insurance returns are normally higher than the profits generated from a Whole Life Insurance Policy or the regular Universal Life Insurance Policy.  

 The set policy cap is considered when it comes to cash value crediting. For example, a cash value crediting of 12 % is guaranteed when there is a policy cap of 12%. It is important to point out that the cash value crediting is not determined by the underlying market index return.

 The underlying market index performance can have a negative return and this is always the best moment for clients to build their cash value. In this case, policyholders do not need to worry about their principal as it is protected in instances of negative performance. Tax deferral makes the funds in the cash value account to grow. Therefore, taxes can only be paid after the money has been withdrawn.  

 It is possible for a policyholder to grow their cash value account when there is tax deferral.  Also, your family members are protected by the death benefit component, which does not attract income tax. The policy does not have a ‘term’, that is, it lasts for the rest of your life, hence the ‘permanent’ word.

In summary, the Indexed Universal Life Insurance policy offers both the death befit component and the cash value returns component based on the market index performance. Policyholders have to consistently pay their monthly premiums for the coverage to remain valid. Indexed Universal Life Calculator can calculate cash value and the monthly premium of indexed universal life insurance policy.

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Indexed universal life Insurance

Indexed universal life policy provides the person being insured the ability to allocate pre-set amounts of cash value to an equity index or fixed account. You can find a wide variety of indexed policies that range from Nasdaq 100 to the S&P 500 and more. This also means that the premiums are flexible, and you can alter the different elements of the policy, such as the death benefit, premiums, and savings aspect. They are permanent policies, much like whole life, but there are some substantial differences, such as the flexibility that universal life offers so you can make changes when needed while whole life remains fixed.

Another aspect that makes Indexed Universal Life an attractive policy for many is how interest can affect the cash growth of the value. Because your policy can experience growth without a downside, such as when it is indexed to the S&P 500, you stand to earn a considerable amount depending on what you have indexed in terms of your policy.

In addition to the growth, there is also the dividend yield which makes this type of policy attractive as well. For example, if the S&P appreciates at 4% and the dividend yield comes in at 2%, then your total return will reach 6%, although in practice this is not likely to occur. It should be noted that the index is evaluated with a point-to-point system which means it is calculated between two pre-set dates.

Indexed universal life is an attractive but complex policy that may yield considerable returns depending on what you have attached to the indexing.