Indexed Universal Life Insurance

How is it different from standard universal life insurance?
Indexed universal life insurance distinguishes itself in the way its cash value grows: the cash value experiences a rate of interest that follows a standard market index.  For instance, if your policy’s cash value follows the Dow Jones U.S. Oil & Gas Index, then your interest rate will increase when the value of oil and natural gas increases.

With indexed universal life insurance, the interest rate is subject to change, but changes are not in the hands of your insurer.  Your insurer may provide you a choice of certain market indices to which to bind your interest rate however there is sill a minimum rate of interest.  For example if your cash value followed the Dow Jones and the market plummeted like it did in 2009 you would still receive your minimum interest rate.

Benefits of Equity Indexed Universal Life Insurance

1. You can earn a credited interest rate higher than the traditional cash-value policies, without subjecting yourself to unnecessary risk.

2. Just like any permanent life policy, equity indexed universal life insurance provides the cash value element, with the difference that here you have the option to participate indirectly in the upward movement of a stock index without the downside risk associated with the stock market. The interest to the cash values increases with the upward annual movement of a stock index, and that does not include the dividends.

3. Equity indexed universal life offers a number of tax advantages: death proceeds are not subject to tax at death, cash values build up tax-free, and there is the possibility of tax-managed earnings for education or retirement.

4. With equity indexed universal life policies, the cash-surrender value can reach an annual growth cap of around 10-14 percent. In years when the equity index is flat, the cash value reaches the floor, which is usually guaranteed to be 0%. Most insurance companies offer a guarantee of a minimum interest rate for a certain period of time.

Due to the fact that tax rates increase over time Indexed Universal Life insurance is the most profitable retirement plan.  You pay the tax on money going in but not coming out.  For more information on the tax and financial benefits of Universal Life insurance give us a call.


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