Indexed Universal Life Insurance: Is It Right For You?

Until recently, there have been four main categories of life insurance available: term, whole, universal, and variable.  There are benefits and disadvantages to each, but by weighing them, along with personal situations and goals, a person can purchase a policy that suits their needs and provides financial protection for their loved ones.  But, like any other industry trying to make it in our current economy, product developments in life insurance are crucial, in order to keep up with the demands and desires of consumers.  Many people are interested in low-cost death benefits, flexibility with their premium, cash value accumulation, and guaranteed income, but they’ve had to sacrifice one or more of their priorities, because there just wasn’t a product that met them all.  But there is a fairly new product that is gaining popularity and may just be able to satisfy all of your life insurance needs, according to the foxbusiness.com article, “Is There Really a Perfect Life Insurance Contract?”

Indexed universal life (IUL) policies have been on the market for approximately 17 years, but haven’t been offered by many insurers until recently.  An IUL is a traditional universal life insurance policy, which has part of your premium paying into the policy, and another part going into a cash account.  The cash account earns interest and accumulates tax-deferred.  Traditionally, the interest credited is determined by the performance of the insurance company’s general bond portfolio, which in today’s low-interest-rate market, isn’t much.  With an IUL, the interest is based on the movement of an index over a period of time, such as the S&P 500.  This gives the policy potential to earn more than the fixed interest rates.  A variable life insurance policy also is not locked into a fixed interest rate, but most do not offer any guarantees, which many consumers are looking for these days.   IUL policies do contain guarantees; not as promising as traditional universal life policies, but with the trade off of an increase in earning potential, many are happy to accept them.

Tim Fussell, author of the article, listed several characteristics of the “perfect customer for the IUL.” This product might be right for the person who is somewhat moderate with the risk profile, and wants to share the risk with the insurer in return for lower-level guarantees.  Those who are focused on cash value accumulation and death benefit protection while wanting access to policy cash throughout the life of the policy, may be interested in an IUL.  Those seeking the benefit of interest-crediting potential but looking to take fewer risks will most likely be intrigued by indexed universal life insurance.  Fussell warns, however, that when looking to purchase this type of policy it is crucial to work with a well-trusted advisor.  There are several varieties of policies available and he recommends working with an independent agent who represents several different companies, as opposed to someone who works for only one.  As always, it’s necessary to do a little homework, determine what type of policy will suit your needs and from whom you’d like to purchase it from.  Comparing rates and investigating the reliability and professional ratings of insurers is always recommended.