Key Features

•Death benefit protection
•Money inside your policy grows income tax-deferred in fixed and indexed strategies
•Greater growth potential than traditional universal life
•Guaranteed not to have a negative index crediting rate even in a down market  
•Flexibility in how you want to pay premiums

Indexed universal life insurance policies can serve as another investment option in your retirement portfolio and allow you to accumulate cash on a tax-deferred basis.

The funds you allocate for an indexed universal life policy (or IUL) allow you to direct the premium into one or more index allocation options such as the S&P 500 index. The insurance company tracks the index performance and uses a crediting method to calculate your indexed interest and the interest is credited to your cash value.

If the index declines, the crediting formula allows you to avoid the loss and earn zero interest in down years, he said. When the index rises, the insurance carrier credits those positive returns based on its formula since there is often a maximum crediting rate that can be earned.

The most unique feature is that an indexed universal life policy eliminates the market volatility, yet provides the mechanism to earn competitive interest rates. The advantage of owning an indexed universal life policy is that in a permanent life insurance policy’s cash value, performance is tied to the performance of certain indeces unlike a variable universal life policy.

One of the most common indexes chosen is the S&P 500 index, so if the index increases by 10% in the first year, then your account will be credited 10%. If the S&P 500 increases by 20%, you will receive 14.5% ( depending on which company we are using). However, if the index dipped by 50%, the policy will receive no interest, but doesn’t lose any money.

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