earn interest credits. • IUL policies usually cap your returns but also guarantee a minimum interest rate. How Does Indexed Universal Life (IUL) Insurance Work? As with universal life insurance, IUL policies have adjustable premiums. You can underpay or skip premiums, and you may be able to adjust your death benefit as well. What makes IUL different is the way the cash value is invested. When you take out an indexed universal life insurance policy, the insurance company will help you select the index to use for all or part of the cash value account segment of your policy and your death benefit. When a premium is paid on the account, a portion pays the cost of insurance based on the insured's life. Any fees are paid, and the rest is added to the cash value. The total cash value is credited with interest based on increases in an equity index (but isn't directly invested in the stock market). If you own an indexed universal life policy, you can likely borrow against the cash value accumulated in the policy. However, if you don't pay back your loans, they are deducted from the death benefit. Key Features IUL insurance offers these main features, among others: • Permanent, lifelong coverage when premiums are kept up to date. • Flexible premiums, and possibly a flexible death benefit. • Cash value, along with potential growth of that value through an equity index account. • Cash value can be partially allocated to a fixed interest option. • Minimum interest rate guaranteed, but there may also be a cap on gains, typically around 8%-12%.5
25
Powered by FlippingBook