“ It offers the protection of life insurance with the added bonus of a guaranteed return of premium” - Monica Thurman

Life insurance is one of the most important financial decisions you can make for yourself and your loved ones. It offers peace of mind by providing a death benefit to your beneficiaries in the event of your passing. Additionally, life insurance can help you build wealth and protect your family's future.

One type of life insurance that has been gaining popularity in recent years is indexed universal life insurance (IUL). IUL is a hybrid product that combines the benefits of traditional universal life insurance with the ability to earn interest based on the performance of a stock market index.

How IUL Works

When you purchase an IUL policy, a portion of your premium is allocated to a cash value account, which is invested in an index, such as the S&P 500. The cash value grows tax-deferred and can be accessed tax-free through policy loans and withdrawals. The amount of interest credited to the cash value account is tied to the performance of the chosen index, subject to caps, floors, and participation rates.

One of the main advantages of IUL is the potential for higher returns than traditional fixed-rate universal life insurance policies. However, IUL also offers a downside protection feature called a floor. This means that if the index performs poorly, your cash value account will not decrease below the floor.

The Case of Mike from Lake Elsinore, CA

Let's take the example of Mike, a 35-year-old resident of Lake Elsinore, CA, who is married with two young children. Mike is in good health, and he wants to secure his family's future financially in case something happens to him. After considering his options, Mike decides to purchase an IUL policy with a death benefit of $1 million.

Mike's IUL policy has a floor of 0%, meaning his cash value account cannot decrease below the amount he has invested, even if the market index performs poorly. Additionally, Mike's policy has a cap of 12%, meaning that if the index performs exceptionally well, his cash value account will be credited with a maximum of 12% interest.

Over the next 25 years, Mike makes regular premium payments to his IUL policy. During this time, the index experiences both ups and downs, but Mike's cash value account remains protected by the floor. At the end of 25 years, Mike's policy has accumulated a cash value of $250,000.

Because Mike's policy is set up to be tax-free, he can withdraw funds from his policy as needed to pay for his children's education or other expenses. Mike also has the option to take out a policy loan against his cash value account without incurring taxes or penalties.

Assuming Mike continues to make premium payments, his policy will continue to accumulate cash value and potentially increase his death benefit over time. In the event of Mike's passing, his beneficiaries will receive the full death benefit tax-free, which could be used to pay off debt, cover living expenses, or invest in their own financial future.

Why Consider IUL?

IUL can be an attractive option for individuals who want the potential for higher returns than traditional fixed-rate life insurance policies, while still protecting their cash value account from market downturns. Additionally, IUL can offer tax-deferred growth and tax-free access to cash value through policy loans and withdrawals.

However, it's important to note that IUL policies can be complex, with caps, floors, and participation rates that can affect the amount of interest credited to the cash value account. Additionally, policy fees can be higher than those of traditional life insurance policies, so it's essential to understand the costs and benefits of IUL before making a decision.

If you're interested in learning more about indexed universal life insurance please visit us at https://www.drivenfin.com and schedule a time to meet with a professional.