Still unsure if indexed universal life is for you? It's not easy tracking down the right life insurance policy, and there's no one-size-fits all package. That's because the minute financial and personal details of a life are so varied, and each policy is designed to fit certain circumstances and preferences. Here are some signs that an indexed universal life policy might be the right buy for you.
Generally, indexed universal life makes sense for people who are doing well financially, as purchasing a policy with a low face value will rob you of many of its benefits.
This is not really a life insurance policy for people who have no idea what is going on with the markets. These policies can be cheaper than other universal policies, and that's because you, the policyholder, shoulder a lot of the risk (as well as lift some management off the providers' shoulders).
But if you're going to make a decision like this, you either need to understand this stuff or be willing to learn. If you don't have time, discipline, or desire to manage your own policy, you might be better off with something else.
One of the more attractive components of indexed universal life is the flexibility of the premiums. Like most universal policies, you are required to maintain a specific minimum in order to keep the coverage current and have access to the death benefit when it's needed, but beyond that, you decide how much more to pay and when.
The additional input goes towards the cash value of your account.
If you have fluctuating cash flow, IUL may be a good choice because you can pay less when times are a bit tight and then pour more money into the account during your upswings.
There is a drawback to this type of premium structure in that your policy can really suffer, and perhaps even lapse, if you neglect your premiums too often, so speak with your agent about the specifics and be realistic about your self-discipline and finances.
This type of insurance policy offers a middle-ground that will be advantageous to a specific type of policyholder. If fixed interest seems a bit too confining to you, you may have considered variable universal policies, which allow you control over where your money is invested, creating a potential for greater gains. The problem is that this additional leeway can sometimes be too much for buyers, and if their choices don't perform, their life insurance policy suffers.
Indexed universal life takes away some of the risk by tying interest to equity indices. And then it goes even further by creating a floor, meaning if the index declines, you don't lose anything (you just don't gain).
They have to cap your earnings during upswings in order to make this possible, but the end result is you get more control without taking on too much more risk. For some people, it's a great middle ground that leaves room to create a bigger cash value without subjecting your death benefits to the chance of loss.
The above truth about the gain and interest caps on indexed universal can be a tough pill to swallow if you still view life insurance as an investment vehicle. But you shouldn't.
Life insurance isn't meant for that purpose; the so-called investment component is just there to support the policy, first and foremost, and hopefully maximize interest rates.
This is a permanent life insurance policy, meaning the death benefit doesn't suddenly disappear once the term is up, like with term policies. This type of coverage costs more, but some people would rather pay the higher premiums and have something to show for it over time; after all, most of don't stop having loved ones once kids are no longer dependents and still want to leave something behind.
Even without children, there are spouses, estates, debts, and other obligations to consider.
If your needs truly are temporary, a temp life insurance contract can be a great choice, but for some it's non-negotiable.
Indexed universal life insurance can be great if you want to take money out of your cash value or take loans against it as needed. In fact, such withdrawals are tax-free (withing certain IRS guidelines) if you don't withdraw more than you've paid in premiums. There is a possibility here for a tax-free income stream.
Still Not a Perfect Fit?
Remember, many life insurance policies come with optional riders that you can use to alter or expand the capabilities of your coverage. Be sure to ask your potential provider about what types of changes are available, or tell them about your unique circumstances to see if they've got an idea of a better fit.
Click here for further reading about indexed universal life, or get started with a free quote to see what's available for someone that fits your profile.