Tax-Free Life Insurance (IUL)
Indexed universal life insurance (IUL) is a type of tax-free lfe insurance policy that puts a portion of the premium payments toward annual renewable term insurance. The remainder is added to the cash value.
In layman’s terms, an IUL, or tax-free life insurance policy lets the policyholder choose how much cash value should be assigned to certain accounts, either through a fixed or an equity indexed account. There are several indexes that are offered by IULs, most commonly the S&P 500 or Nasdaq-100.
IUL policies also consist of a death benefit.
Pros and Cons
There are several advantages and disadvantages that come with an IUL.
The advantages include:
- Flexibility: The amount risked that is within the indexed accounts and death benefit can be adjusted by the policyholder.
- Tax-free: The cash value that is accumulated is tax-deferred.
- Higher return potential: An IUL can provide a bigger gain in cash value compared to other life insurance policies.
- Death benefit: This is a permanent benefit that is not subjected to death taxes or income.
- Low cost: The cost is low as the policyholder is the one who bears the risk.
Disadvantages include:
- Based on equity index: When the index goes down, interest is not credited to the cash value.
- Caps on returns: There are sometimes limits to the increase in cash value by the insurer.
- Must have a larger face amount: Smaller face amounts do not have much advantage over regular universal life policies.
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Is An IUL For You?
Overall, this policy provides flexibility while being tax-free, and is best for individuals with large investments who want a tax-free retirement.
For more information about IULs and whether or not it is right for your retirement plan, reach out to Advanced Insurance Concepts at 816-476-8191.