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Indexed Universal Life Insurance Explained

Life insurance is an essential consideration for anyone whose income supports someone else.

There are a variety of types of life insurance policies, and the distinctions can be a bit confusing.

Fixed indexed universal life insurance (FIUL) is a popular type of permanent life insurance that includes a savings element. This policy has the potential to grow by receiving interest based on positive changes in an external market index, such as the S&P 500. Your principal investment is guaranteed, meaning you won’t lose money due to market loss when the market has a bad year. However your interest growth is capped, so you won’t receive all of the upside of the market index. If you are looking for a life insurance policy that also features a savings element, you may want to consider FIUL.

Some pros of indexed universal life policies

  • There are no IRS premium limits, so you can contribute as much as you want (up to the maximum allowed by the insurance company). Keep in mind, however, that overfunding the policy could result in the policy becoming a Modified Endowment Contract, which involves additional tax considerations
  • Life insurance proceeds are tax free to your named beneficiaries
  • You can start taking distributions whenever you want instead of having to wait until a certain age. You may be able to borrow money from your FIUL policy to pay for large expenses, assuming the policy’s cash value is sufficient.
  • Your principal is protected

Some cons of fixed indexed universal life policies

  • FIUL is life insurance, and it involves fees, expenses, and restrictions. In addition, you may need to qualify for insurance medically, and in some cases, financially, through the underwriting process
  • FIUL involves a surrender penalty period and taking excessive distributions from the policy can result in loss of principal or credited interest

Should I get an FIUL policy?

As with every financial decision, there are advantages and limitations to FIUL that will factor into your decision. FIUL combines a life insurance death benefit with a savings component. To determine if a Fixed Indexed Universal Life policy may be right for you, we suggest you consult with a knowledgeable independent insurance agency, like Absolute Retirement Solutions. We focus on developing personalized insurance and retirement income strategies to help meet the unique needs of our clients. Our agents can help you decide if your overall financial strategy could benefit from a life insurance policy. Contact us today to speak with a qualified professional.

Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company.

Policy loans and withdrawals will reduce the policy’s cash values and death benefit, and could cause the policy to lapse. Additional premiums may be needed to keep the policy in-force.

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