If you have a family, it is natural for you to want to make sure that they can survive financially when you’re no longer around. Insurance can be a lifesaver, especially after losing a loved one. That’s where life insurance comes in.
Life insurance is an agreement between a life insurance company and insured person, where the insured pays a monthly sum or premium to secure payment to their beneficiaries once they die. As of 2021, 52% of U.S. residents owned a life insurance policy. Therefore, it’s safe to say that more than half of the American population is already considering their families’ long-term well-being.
But did you know you could earn from your premiums while you’re still alive? Of course, that won’t happen with just any insurance policy—not all life insurance plans earn income.
This is why Index Universal Life Insurance (IUL) policies were created to help you build long-term and sustainable wealth through your life insurance coverage.
If you’d like to learn what Index Universal Life Insurance is and how you can earn more money with your Index Universal Life Insurance policy, this article is for you.
What is Index Universal Life Insurance?
Index Universal Life Insurance is a type of permanent insurance that allows you to accumulate wealth while ensuring expenses are covered after your death.
Some life insurance policies, normally known as term life insurance, have a time limit or “expiration date.” Once your policy matures – reaches its end – if you didn’t die, your family doesn’t receive a payout. That leaves you two options: reapply for another term life insurance policy or live without life insurance. The latter might not be such a great idea, especially if you are looking to leave a legacy and provide income for your family after you’re gone.
The good news is that Index Universal Life Insurance (IUL) is permanent life insurance coverage, so your policy lasts for as long as you live (or until you stop paying premiums).
How Does Index Universal Life Insurance Work?
At the beginning of your Index Universal Life Insurance (IUL) policy, you and your life insurance agent will discuss an affordable premium and payment schedule, your income, and personal finances. Your insurance provider will use a portion of every payment to cover your life insurance policy costs. Then, they invest the rest of your premium into an interest-crediting strategy like S&P 500® or Nasdaq.
Investing sounds risky for most people because the market is known to fluctuate. Don’t worry: you won’t be investing directly in the stock market. Instead, the insurance company uses an index related to the stock market’s performance to determine your investment profits.
What does this mean, exactly?
Whenever the stock market index does well, your cash value increases. Index Universal Life Insurance providers regulate the interest added to your cash value using a “cap and floor system.” The cap limits the percentage of the total interest you earn on your account. So, if the index shows 15% profits, you might make 12%. The actual rate of interest added to your cash value will depend on the terms of your policy.
On the other hand, the floor protects you from significant losses when the stock market indices drop too low. Generally, the Index Universal Life Insurance floor is set at 0%. On a bad day, when the market suffers a 15% loss, your cash value remains unaffected. You’ll be safer (than the average person) from the unpredictability of the investment landscape.
The best part about the cash value aspect of an Index Universal Life Insurance policy is the fact that you get to use your earnings in real-time—the benefits start long before you die. As the life insurance policyholder, you can choose to withdraw your cash value or borrow against it to take a personal, family or even business loan! But beware: your insurance provider will deduct any outstanding loan payments or withdrawals from the policy’s death benefit.
The more cash value you spend, the less money your loved ones will inherit. And be sure to read the fine print of your insurance contract before finalizing the agreement. In most cases, canceling your policy will incur surrender charges to your account. Ironically, it’s one detail that always catches policyholders off-guard.
How Much Does Index Universal Life Insurance Cost?
The cost of an IUL policy varies among insurance providers. Some companies have stricter standards for policy approval than others. Premiums range anywhere from $150 to $800+ monthly.
Eligibility for Index Universal Life Insurance depends on your:
- Age: Older applicants pay higher premiums because they’re “statistically” more likely to die in the near future.
- Sex: Research suggests that women live longer than men.
- Health: Applicants with underlying health conditions have higher premiums; those with terminal illnesses might be ineligible for specific policies.
- Lifestyle: Tobacco smokers can expect to pay higher rates because nicotine decreases overall health.
Ultimately, insurance providers charge more if they suspect they might need to make death benefit payouts soon. This also explains why many companies request medical exams as part of the application process. Some providers allow applicants to apply without a medical exam, but these are even more costly because there’s no actual indication of your health status.
Besides those factors, Index Universal Life Insurance policies include liabilities like administrative fees, commission, and the like into your overall cost. So there’s no universal formula for calculating the amount you’d pay before speaking with an agent. Even then, remember that their portfolio values are only estimates. They especially can’t predict how much profit you’ll reap from cash value investments.
The 2010 Dodd-Frank Act allows Index Universal Life Insurance providers to give biased policy quotes. But you can ask their agent for performance data from previous years to help gauge their policy’s profitability.
As a life insurance policy owner, you can request a policy illustration to judge whether it’s a good time to take out a loanfrom your Index Universal Life Insurance policy. The illustration predicts how your policy might perform with what’s left of its coverage after a loan.
If the report shows premiums are likely to soar, you should consider whether you’d be able to manage payments for both a hefty insurance fee and loan debt. If you don’t cover regularly scheduled premiums, that could result in a policy lapse. Ergo, you’d lose your Index Universal Life Insurance policy!
What Are The Best Index Universal Life Insurance Companies?
The best IUL insurance companies are experienced in their industry. Typically, you’ll want to partner with a provider that owns:
- Flexible policy options
- Personalized premium plans
- Attractive interest limits
- Reliable customer service
Below, we’ve included a list of reputable Index Universal Life Insurance providers you may want to consider.
National Life Group
National Life Group offers flexible premium payments that you can adjust to suit the ever-changing stages of life (because life’s circ*mstances are constantly evolving, especially when caring for a family). The company also allows policyholders to lower their death benefit.
At The Purpose Of Money, we consider National Life Group as one of our top choices because of their excellent performance ratings, customer service, and value for money.
Prudential Financial
Prudential is unique because it offers two different IUL insurance products that you can choose from—PruLife Index Advantage UL and PruLife Survivorship Index UL. The PruLife Survivorship Index UL plan covers two people and pays death benefits when the couple dies.
Minnesota Life (Securian Financial)
Minnesota Life also offers a Survivorship Policy, which may be suitable if you own an estate or family business or wish to continue assisting a dear one with special needs.
TransAmerica
TransAmerica’s IUL policy allows you to accumulate cash value towards a basic interest account and an index account. Plus, the company transfers earnings between the two accounts without any taxes.
Is Index Universal Life Insurance a Good Investment?
Index Universal Life Insurance typically takes between 10 to 15 years to accumulate reasonable cash value. With that in mind, it would be best to start your policy before you turn 65. Ideally, you should apply for Index Universal Life insurance during your mid-30s to early 50s. It will buy you enough time to build a long-term investment.
Otherwise, Index Universal Life Insurance can be an excellent venture for people seeking to invest without getting tied up in the stock market’s volatility.
Index Universal Life Insurance policies carry many benefits, including:
- Tax-deferred cash values
- Tax-free death benefits
- Zero-risk stock market investment opportunities
- Non-tax-deductible interest
Nonetheless, IULs aren’t for everyone. If you’re single and already started investing from early adulthood, it might be a good idea to focus on opportunities like an Individual Retirement Account (IRA) or 401(k) to save for retirement.
For one, life insurance models work best for candidates with partners or children who can stand as their heirs. Secondly, Index Universal Life Insurance premiums are often expensive and have serious commitments for the long term. Not to mention the cap placed on your investment returns. The policy might not be as lucrative for your circ*mstances.
Do I Need Index Universal Life Insurance?
It takes a lot of planning and strategizing to decide on the ideal insurance policy for your situation. Your best bet is to discuss your goals with an experienced professional.
If you need help creating a financial plan or want Index Universal Life Insurance explained in more detail, I’m only a call away. Sign up for a free consultation now to learn how you can build wealth and protect your family financially!
