The Growing Indexed Universal Life Insurance Policy
Why is Indexed Universal Life Insurance (IUL) becoming more popular choice for securing your financial future? IUL, which can also be referred to as an equity indexed UL or EIUL has become more popular with consumers in the past few years. So what makes it so attractive?
IUL is a permanent life insurance product that offers all the benefits of a universal life contract, but with accumulation values usually tied to the S&P 500 Index®. In years where the index does well, interest crediting rates will rise, whereas, in years where the index performs poorly, they will fall. The policyowner can potentially reap the rewards of stock market gains, but also be protected in case of stock market losses with minimum guaranteed interest rates. Sounds pretty good right!
It otherwise has all of the typical features of traditional universal life. The major difference with IUL is the option to participate indirectly in the upward growth of the stock index without accepting the normal risk associated with investing in the stock market. The actual interest credited to a policy's cash value is determined by the annual changes of an equities index. Most insurance companies use the S&P 500 Index® as the underlying index for their equity indexed life product, or on occasion the Russell 2000® Index.
With indexed universal life, in years where the underlying equity index increases, the policy cash value will increase up to a certain limit, usually referred to as the growth cap (which is set by the company regardless of how high the gains in the market actually are). In years where the underlying equity index is flat or has a loss, the cash value is subject to the growth floor. The floor is generally guaranteed to be 0%. Additionally, some companies offer a cumulative guarantee that can assures a minimum effective interest rate over a given time period. This combination of the potential to realize higher upside returns without the downside risk makes the equity indexed life insurance policy an attractive cash accumulation product.
The real value of the indexed universal life policy is its ability to earn a credited interest rate that can be higher than a traditional universal life or whole life insurance policy without accepting the risk of loss associated with the variable universal life policy. The IUL policy is designed to capture the best aspects of both the fixed whole life and the variable life policies enabling it to earn an acceptable "middle ground interest rate" without taking on unnecessary risk. It is not a securities product and is therefore not subject to FINRA requirements like variable products for producers who are looking to offer it, which in turn, can make it available to more consumers.
IUL products performed well during the economic downturn in 2008 and 2009 and continue to increase their market share. During tough economic times, this product has proven it is a reliable fit for many insurance portfolios.
About the author: Kyle McDonald holds FIC, FICF, FSCP® & CLTC designations. His viewpoint on life insurance is simple, “Anyone with a family must have life insurance. In the end, life insurance is for others you care about, not you.” He is ready to help you and your family get the best option available. Contact Kyle today at 1-800-651-1953 or KMcDonald@Pivot.com.