Indexed Universal Life Insurance

Are you looking for a universal life policy with a cash account with higher growth potential?

An indexed universal life insurance policy offers the best of both worlds – death benefit protection and access to more significant cash values in retirement while remaining affordable for most people!

These plans have many advantages and a few weaknesses, which we will cover in our informative indexed universal life insurance review.

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How Indexed Universal Life Insurance WorksWhat Is IUL Insurance?

An IUL insurance is permanent coverage that will last your entire life when properly designed.

IUL insurance is marketed as a cash value policy that benefits from the market’s tax-free gains without the danger of loss during a market downturn.

Indexed universal life plans put a part of your premium toward annual renewable term life insurance while the balance is added to the policy’s cash value after fees are deducted.

Is IUL insurance a good investment?

With IUL policies, the interest rates are linked to the performance of an underlying financial index such as the S&P 500 Index.

The goal is to maximize returns by overfunding the policy and eventually borrowing against the accumulating cash value through tax-free loans.

Life insurance savings plans can be a fabulous way to save for long-term financial objectives.

Each type of life insurance has various risk-reward trade-offs. A policy should be selected with your unique risk threshold, much like conventional investments.

Policies that can generate better cash values have higher performance uncertainty, as the returns could be more significant or more detrimental than initially projected.

Furthermore, higher-risk policies have a greater risk of terminating due to the underperformance in their cash-value account.

is iul insurance a good investment

IUL Insurance Key Features and policy design

An IUL policy has many different features and can be created according to your needs and the company that issues your policy.

It is helpful for you to be familiar with the various cash value options available and how they affect your policy’s performance.

  • Cash Value: An IUL’s cash value earns interest in either a fixed or indexed account.
  • Minimum Interest Rate: Both the fixed and indexed accounts have a minimum interest rate, the guaranteed minimum interest credited in that specific account. The standard rate for a fixed account is between 2-3%, and the indexed account floor is usually 0%.
  • Indexed Account: The indexed account can track many different equity indices, such as the DJIA, S&P 500, NASDAQ 100, Russell 2000, and the EURO STOXX 50. The money in the indexed account earns interest based on the performance of the underlying index, subject to the cap and participation rate.
  • Participation Rate: The participation rate determines how much your cash value will participate in the gains of the shadowed index. The conventional participation rate is usually 100% for a capped index.
  • Capitalization Rate: The cap is the maximum amount of interest for that segment the insurer will credit to your indexed account. Capitalization rates vary depending on the type of indexed account and crediting methods.

 IUL Investment Tip:

If you do your homework, you will discover that companies offer different cap rates and participation rates depending on the policy and your selected index.

 Some insurance companies offer uncapped potential but have a lower participation rate.

In contrast, other insurers offer 100% participation rates but with cap rates varying from 8% to 16%.

The caps and participation rates can directly affect indexed universal life insurance performance and overall cost.

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best indexed universal life insurance

Indexed Universal Life Insurance Pros and Cons

The indexed universal life insurance policy is like a Swiss Army Knife for your finances but is certainly not always justified.

People with disposable income purchase indexed life insurance as an asset to provide tax-efficient wealth accumulation or safeguard against untimely death.

Most people who use life insurance for retirement income are under 50 years old because policies can take almost fifteen years to reach their peak efficiency.

People of all ages and incomes can buy indexed universal life coverage for pure lifetime death benefit protection.

Many affluent families buy a policy covering both husband and wife called survivorship indexed universal life insurance (SIUL).

The primary reasons for buying SIUL are to either protect their fortunes from eventual estate taxes or a wealth transfer strategy.

Let’s take a closer look and review a list of pros and cons of buying indexed universal life insurance.

index universal life insurance reviews

Advantages of Indexed Universal Life Insurance

Several advantages of lifetime protection products, like guaranteed universal life, are also possible with many quality IUL insurance policies. 

  • Flexible Death Benefits and Premiums: You can change your premiums and lower the face amount, depending on your cash-value performance and needs.
  • No-Lapse Guarantee Rider: A no-lapse rider prevents your policy’s death benefit from lapsing until age 120, regardless of the performance of your cash value.
  • Long-term Care: Optional living benefit riders can be added to your policy and help protect your family from liquidating other assets.
  • Accelerated Death Benefit; Many policies also provide an accelerated death benefit if you become terminally ill.

Plus, where indexed universal life insurance truly shines is how the cash value accumulation of works compared to other types of permanent life insurance.

  • Higher Return Potential: IUL policies leverage call options to gain upside exposure to equity indexes without the danger of losses. 
  • Minimum Return: IULs can offer a guaranteed minimum return on your policy’s cash-value account.
  • Unlimited Contributions: Traditional retirement accounts like 401(K) and IRAs have contribution limits, but IULs do not have such limitations.
  • Tax-free growth and distributions:  Distributions are tax-free when you eventually withdraw money from the cash value of the IUL.
  • Easy Access: There is no age requirement for withdrawals, unlike 401(K) and IRAs, where you have to wait until age 59 before taking withdrawals.
  • Loans: Depending on your policy and available cash value, you can borrow money against your life insurance policy without facing penalties and income taxes.
  • Social Security: Policy withdrawals will not count toward the social security earnings thresholds, and neither will any loan values that you borrow.
  • Safety: Cash values are relatively secure compared to other investments, which is helpful when using life insurance for retirement income.

Depending on how your agent builds your policy, it is not uncommon for both protection and savings goals to be satisfied within the same IUL policy.

what is iul insurance

Cons of Indexed Universal Life Insurance

There are often suitability problems when unscrupulous agents sell this product to people who really cannot benefit from it due to their age and underlying needs.

Thankfully, many carriers now require a suitability questionnaire to be filled out and signed before activating a new policy.

  • Needs: If you do not need permanent life insurance when you retire, you should avoid buying any lifetime coverage.
  • Long-Term Investment: Buying term insurance and investing the money you save from not buying universal life is wiser for people with a short investment time frame.
  • Age Limitations: The accumulation timeline constraints of IUL make it an inappropriate strategy for older investors. 

Other problems exist within the policy language, which is meant to boost the insurer’s profits while producing inferior cash value performance for its policyholders.

  • Caps on participation rates: Some insurers establish a maximum participation rate of less than 100%, limiting the rate of return credited toward your account each year.
  • No Guarantees: IUL policies offer returns based on an underlying index and have variable rates over time.
  • Fees: IUL insurance policies can come with various costs that detract from your policy’s rate of return.
  • Lapse: The policy could potentially lapse (unless it has a no-lapse rider) if the premiums are not timely, causing the money you take out to become taxable. 

Both company and product selection are essential because many quality insurance companies have taken proactive steps to mitigate these risks. 

 indexed universal life iul feesAlternative Types of Life Insurance

There are many additional policies to choose from, varying from affordable term life insurance to more costly universal life, whole life, and variable life insurance policies.

indexed universal life insurance vs. term life

The main differences between term and universal life insurance are the length of the policy, whether it accumulates a cash value, and how much it will cost you.

Term life insurance covers you for periods ranging from 10 or 40 years.

As long as the premiums are paid, term coverage will not expire until the end of your term, providing your heirs with death benefit protection.

Most people purchase term life insurance as a prudent step to protect their family and probably never use the death benefit.

Indexed universal life provides adjustable lifetime coverage and a savings component that builds up over time.

indexed universal life  vs. variable Universal life insurance

The main difference between indexed universal life insurance and variable universal life insurance is how the cash value gains are recognized.

A variable universal life (VUL) policy grows cash by investing in sub-accounts similar to mutual funds.

VUL has greater exposure to market fluctuations that can generate significant returns and substantial declines.

A VUL insurance policy offers increased flexibility and growth potential over an IUL or whole life insurance policy, and you should carefully evaluate the risks before buying it.

whole life insurance vs. indexed universal life

The most common and popular lifetime coverage options are indexed universal and whole life insurance.

People choosing between IUL vs. whole life should consider their risk tolerance before deciding.

A whole life insurance policy provides you with a guaranteed premium and death benefit when you pass away.

Whole-life policies guarantee a fixed premium while your policy slowly accumulates cash value over time.

When limited pay whole life is overfunded, it can safely accelerate cash value accumulation.

Whole life is favored for infinite banking because the cash values, premiums, and death benefits are guaranteed, while dividends can fluctuate.

Indexed universal life policies have the potential for faster cash accumulation because cash values are linked to the performance of an equity index.

Types of Life Insurance Chart 

 TermULIULWL
Cheapx   
Flex Payments xxx
Flex Benefits xxx
Durationxxx 
Lifetime xxx
Cash Value xxx

index universal life insurance reviewBuying Indexed Universal Life Insurance 

Many successful people start to think about buying permanent coverage when they start having more disposable income in their early 30s and 40s.

Affordable Life USA helps prosperous people invest in IUL during their peak earning years. 

Our committed financial planners will match you with the best insurance company for growing significant tax-deferred savings in your policy’s cash value account.

indexed whole life insurance

HOW TO QUALIFY FOR IUL Insurance COVERAGE?

When buying coverage, we offer a no medical exam and an exam-required application process.

If you are busy and do not wish to complete a medical exam, we can help you find the best no-exam insurance company.

Most IUL companies expedite the application process by doing a phone evaluation rather than an exam.

In many cases, candidates should apply for coverage by taking an exam. By taking an exam, it may be easier to qualify for more competitively priced IUL policies.

Remember, the exact cost of your life insurance illustration is based on your age, health, and the amount of coverage you need.

iul vs 401kIndexed universal life insurance calculator

After approval, we will review all of your options, and you will be given a conservative illustration of how your policy could perform in the future.

These illustrations forecast your policy’s cash value growth based on projected interest rates, fees, and premiums.

Your policy could have caps that come down over time, increased expenses, and several years of weak market performance not shown in the initial illustration.

So we will also run an alternative illustration to examine how somewhat lower interest rates, higher fees, or smaller premium payments could influence your overall results.

Good news, in 2015, a new policy illustration requirement was implemented!

Actuarial Guideline 49 provides a “happy medium” for all new sales illustrations agents present during client sales meetings.

AG 49 has ordered all insurance companies to make IUL policy illustrations more conservative instead of always showing policyholders a best-case scenario when selling IUL policies.

Buyer Tip

Always ask for a No-Lapse Guarantee Rider!

A No-Lapse Guarantee rider adds an extra measure of safety at an inexpensive cost.

It prevents your policy from lapsing, regardless of the performance of your IUL policy’s cash value.

We can determine if you wish to guarantee your death benefit to age 90 contractually or if age 120 is best for you. 

Please use our calculator to get the best indexed universal life insurance quotes. If you have any additional questions, we are always happy to help!

 Indexed Universal Life Insurance Calculator

 Indexed Universal Life Insurance Calculator

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Indexed Universal Life Insurance CompaniesIndexed Universal Life Insurance Companies

It is essential to thoroughly research insurers to ensure they are among the most reliable indexed universal life insurance companies.

Affordable Life USA is a nationally licensed agency that monitors a network of many of America’s best IUL life insurance companies.

So which companies are currently outperforming their rivals?

A few of the top IUL companies are American National, Mutual of Omaha, Penn Mutual, Lincoln Financial, and Pacific Life.

  • American National: ANICO’s Signature Protection IUL allows you to guarantee death benefits to specific ages and has multiple indexed strategies to maximize the policy’s cash value potential.
  • Mutual of Omaha: Mutual of Omaha’s Life Protection Advantage offers permanent coverage with a death benefit guaranteed through age 90 or longer.
  • Penn Mutual: Penn Mutual offers several IUL insurance policies, including Accumulation Builder Select, Accumulation Builder Advantage, and Accumulation Builder Flex.
  • Lincoln Financial: Lincoln offers three IUL policies: the WealthAccelerate SM IUL, WeathAccumulate 2 IUL, and WeathPreserve 2 IUL. 
  • Pacific Life: Pacific has one of the best-selling indexed portfolios, including the Discovery Xcelerator II, the Indexed Accumulator 6, and the Discovery Protector IUL.  

We put together a shortlist of carriers which is constantly changing because the popularity of this product brings many new competitors into the marketplace.

Here is a list of top IUL companies that offer the highest ratings from the Better Business Bureau, AM Best, and J.D. Power.  

Best IUL Insurance Companies

COMPANYBBBAM BestJD Power
American GeneralA+A718
Guardian LifeA+A++760
John HancockA+A+739
Lincoln FinancialA+A+744
Mass MutualA+A++780
Mutual of OmahaA+A+766
NationwideA+A+806
Pacific LifeA+A+N/A
Principal FinancialA+A+774
Protective LifeA+A+742
PrudentialAA+770

Trending Life Insurance Topics

  • Affordable Life USA, LLC is an independent insurance agency that sells life insurance directly to clients across the United States.

    Its founding member, Eric Van Haaften, has sold life insurance for over 33 years. Eric has been featured in renowned publications such as Time, Newsweek, Us News, and The Wall Street Journal. 

    Our team of experienced insurance agents and financial planners is dedicated to finding the right coverage for your needs and budget. 

    Start searching for the perfect life insurance policy using our online calculator. We consistently update our rates to ensure you can access competitively priced options from many highly rated life insurance companies. 

    Affordable Life USA, LLC

    Eric Van Haaften, LUTCF

       Eric Van Haaften, LUTCF

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