An indexed universal life insurance policy is permanent insurance that offers great flexibility for premiums and adjustments for face amount. The indexed accounts are credited with interest based on the growth in one or more indexes and there is a guaranteed growth rate within the policy. Life insurance is designed to protect your loved ones if there is a premature death in your family.
What I like best about an indexed universal life insurance policy is the fact that the cash value within the policy can be utilized as a way to generate tax free income for retirement. In other words, this type of policy serves two purposes.
- The face amount provides protection for your family in the case of a premature death.
- The cash value growth over the years can generate tax-free income during retirement.
Make sure you work with a Certified Financial Planner® that is affiliated with an independent Registered Investment Advisor (RIA) firm to help you determine which type of life insurance policy is best for you. An independent CFP® works with his or her client’s in a fiduciary capacity. This is extremely important because this type of financial planner is required to always do what is in the client’s best interest.
Indexed universal life insurance is a lot like universal life insurance, however it does have a couple of wrinkles not found in traditional universal insurance policies. Universal life insurance comes in many different forms, from your basic fixed-rate policy to variable models that allow the policy holder to select various equity accounts in which they can invest. An indexed universal life insurance policy gives the policy holder the opportunity to allocate cash value amounts to either a fixed account or an equity index account. Indexed policies offer a variety of popular indexes to choose from, such as the S&P 500 and the Nasdaq 100.
Indexed policies allow policy holders to decide the percentage of their funds that they wish to allocate to fixed and indexed portions. Also, these types of universal insurance policies typically guarantee the principal amount in the indexed portion, but cap the maximum return that a policy holder can receive in said account. Since these policies are seen as a "hybrid" universal life insurance policy, they are usually not very expensive (due to lack of mangement), and are safer than an average variable universal life insurance policy. However, the upside potential is also limited when compared to variable policies.
To learn more, read Intro To Insurance: Types Of Life Insurance.