Is an Indexed Universal Life Policy Right for You?

From acquiring new phrases to understanding how they’re used and why they matter, deciphering the world of life insurance options can often feel a bit like learning a new language. From whole to term life and universal to variable life, choosing the right type of policy can be confusing, especially when you start to consider additional options like indexed universal life (IUL) insurance. 

What Is an IUL Insurance Policy?

Indexed universal life is a type of permanent life insurance that gives you the benefit of market gains while building a cash value. In addition to offering a traditional death benefit for your beneficiaries, IUL gives you the option to use your policy while you’re living through planned loans and withdrawals.

What Are the Benefits of Indexed Universal Life?

The potential for gains in the cash value of IUL can be higher than other types of life insurance, and policyholders also get the benefit of a crediting floor, which means that the existing cash value is protected from market-driven losses. Other pros of IUL include:

• Tax advantages. The cash value accumulates tax-deferred, and the death benefit is tax-free for beneficiaries. Loans and withdrawals are typically tax-free as well.
• No impact on Social Security earnings. Cash value accumulation from an IUL insurance policy doesn’t count toward the earnings thresholds for Social Security benefits, allowing you to take a loan out against your policy without detracting from your benefit amount.
• Provisions for what you need. A variety of riders can make the policy more valuable, including guaranteed premiums, guaranteed death benefit amounts and provisions for long-term care and critical illness.
• Flexible payments. You can make premium payments at any time with IUL, making it a great option for people who want flexibility in managing their policy. Funding your policy at the maximum limit can be done on a tax-advantaged basis and will offer greater accumulation of your money and opportunity for growth. 

What Are the Drawbacks?

The potential for a greater rate of return is one advantage to indexed universal life, but the main disadvantage of IUL is that larger returns are not guaranteed. 

Unlike other types of life insurance, the cash value of an IUL insurance policy grows based on a stock market index, which means that the returns may vary, depending on the performance of the underlying index. 

Certain restrictions and caps on returns can limit the actual rate of return that’s credited toward your account each year, regardless of how well the policy’s underlying index performs. Keep in mind, too, that if you stop paying premiums, your policy may be canceled.

Build a Foundation for Your Future

Trying to decide between different life insurance options? Your local Farm Bureau agent can help. We’ll answer questions and help you choose the right life insurance for your needs.