What Is Index Universal Life Insurance?


Indexed universal life insurance is permanent life insurance that possesses the same features as universal life insurance but adds one additional feature – the investment performance within the cash account is tied to a financial index. Most often, the index will be based on equity performance, although there is no reason why any financial index could not be used.

Basic Features of Indexed Universal Life Insurance

Universal life insurance differs from other forms of permanent insurance, such as whole life insurance, in providing a great deal of flexibility in the timing and amount of premiums. Once value begins to accumulate in the cash account (which may take two or three years), the policyowner can use accumulated cash to pay premiums. The death benefit is also flexible. If the policyowner chooses to draw down the cash account, this will reduce the amount of the death benefit. Alternatively, the policyowner can augment cash value by paying additional premium and add value to the death benefit as well. Premiums can be paid monthly, quarterly, semi-annual, or annually.

Advantages of Indexed Universal Life Insurance

Indexed universal life offers various advantages in flexibilty. Some derive from the indexing feature, others are common to all forms of universal life insurance.

The Security of Indexed Universal Life Insurance

Although the cash value account lacks the guaranteed return associated with whole life, the policy owner’s principal value is protected by the minimum guaranteed interest rate. Although the death benefit may fluctuate, it is guaranteed. As usual, all payout guarantees are backed by the financial strength of the insurance company.

Summary

Indexed universal life insurance exemplifies the unusual flexibility of universal life insurance in general. Its risk return properties make it attractive to both young policyholders and older ones nearing retirement. Premium flexibility is likewise beneficial to both young and old alike if they require either a secure satisfaction of insurance need or growth of cash value. Indexation is a means of enjoying potential market gains without bearing the burden of active investment management. Its minimum guarantees are in keeping with the philosophy of insurance-related products.

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