What is Indexed Universal Life Insurance?

Indexed universal life insurance (IUL) is an insurance policy, often useful in retirement.

Because you can fully fund it, an IUL offers a potential option for retirees to generate tax-free* income. In addition, because it is a life insurance policy, it offers a death benefit as well. An IUL is “universal” life insurance, which means it can offer more than just a traditional life insurance policy. Also, IULs carry other benefits that whole life and other universal life insurance plans may not. For instance, you may be able to protect your cash value, yet still receive a tax-free* income from your IUL.

For some retirees, an IUL may be a helpful addition to their overall retirement plan. Basically, you buy an IUL policy with an insurance company. Because your money is used to buy an insurance product, the issuing company agrees to certain terms. One of those terms is that your money is not at risk of loss in the stock market. Instead, your life insurance links to a chosen index. This gives you indexed interest potential on your money. Regardless of the market conditions, an IUL may provide protection of your principal.

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Some people use an IUL as a way to protect their wealth for their families. For instance, beneficiaries generally get a larger sum of death benefit than what you put into the policy. Also, it is possible that your death benefit increases with time. Of course, this depends upon several factors. Another note about IUL’s is they do not require probate court. Upon your passing, the death benefit simply goes to the people you designate in your IUL. Also, there is no tax on the amount they receive.

As with any tax questions, be sure to consult a qualified tax advisor. If you have questions about IULs and how they may fit into your retirement plan, contact us today. We offer “Tax-Free Income” seminars and webinars that help explain how IULs work. These events are complimentary so be sure to register to attend one soon.

*Proceeds from an insurance policy are generally income-tax-free, and if properly structured, may also be free from estate tax. Income-tax-free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce the death benefit, or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract. The Host and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. This content is not intended to serve as the basis for any investment or purchasing decisions, nor does it recommend or involve the purchase, holding, or sale of a security.  All figures herein are hypothetical and for illustrative purposes only to explain general concepts.  No figure is to be relied upon as being accurate nor a guarantee or projection and is meant only as a partial overview of some relevant features and benefits of general insurance products that may be in the marketplace, and whose availability will be dependent on the State of residence of the consumer, and their individual suitability for the product they are wanting to purchase. Where insurance products are mentioned, any and all guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

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