What is indexed universal life insurance?

Indexed universal life (IUL) insurance is permanent, which means it lasts your entire life and builds cash value. An IUL policy allows for some cash value growth through an equity index account, unlike other universal policies that only grow cash value through non-equity earned rates. Like with all universal life policies, once you've built up enough cash value, you can use it to lower or potentially fully pay for your premium without lowering your death benefit.

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How does an IUL policy work?

As a type of permanent life insurance, indexed universal life insurance works similarly to universal life policies, except in the way they build cash value. IUL cash value allows for growth based on a stock index (a set grouping of various stocks) instead of only through non-equity earned rates. Like universal life, IUL offers the flexibility to adjust your premium as the cash value grows, with the potential to eventually achieve a zero-cost policy in which all premiums are paid for by your built-up cash value.

How is interest calculated on indexed universal life insurance?

IUL policies allow you to grow your cash value by putting a portion toward an equity index account like the S&P 500 or NASDAQ. Rather than only relying on non-equity earned rates, an equity index account grows based on the index of an entire market or market sector. The interest rate will still be variable, like with other universal life policies. And as with all universal life policies, your IUL cash value will have a minimum interest rate that it will always earn, regardless of market performance. Your IUL may also have an interest rate cap.

Should I get indexed universal life insurance?

Keep in mind that higher premium costs and potential fees make IUL policies more expensive than other types of life insurance. If you're considering buying an indexed universal life policy, first speak with a financial advisor who can explain the nuances and give you an accurate picture of the actual potential of an IUL policy. Make sure you understand how the insurer will calculate your interest rate, earnings cap, and fees that might be assessed.

Indexed universal life insurance vs. term life insurance

Term life insurance offers a simpler and more affordable way to make sure your loved ones are financially protected if you die while the policy is active. Unlike IUL insurance, which lasts your entire lifetime if you pay your premiums, term life insurance remains in effect for a set term, typically 10, 15, 20, or 30 years. If you die while the policy is active, your beneficiaries can make a claim for your death benefit, and there are no interest rates or higher premiums to worry about.

Indexed universal life insurance vs. whole life insurance

If you're looking for permanent life insurance that's less complicated than a universal policy, whole life insurance builds cash value on a predetermined schedule. You don't need to worry about the performance of certain market indexes, and the premium will likely be less expensive with fewer fees than an IUL. However, you won't have the flexibility of adjusting premiums or achieving a paid-up policy like you do with a universal policy.

Indexed universal life insurance vs. variable life insurance

Variable life insurance allows for even more flexibility than indexed universal life insurance, making it more complicated. Unlike an indexed policy, a variable policy's cash value may be entirely dependent on specific stocks you select. While you might have a fixed minimum death benefit on your variable policy, the performance of your cash value could drastically increase or decrease your beneficiaries' total payout upon your passing. Your premium could also be affected by how the variable portion performs, with lower performance leading to a higher cost. For this reason, variable life insurance is considered higher risk than whole or universal life policies, including IUL.

How to get universal life insurance

You can get a universal life insurance quote online. You'll answer some questions; then you'll choose your death benefit amount and other policy details. You can also call 1-866-912-2477 to speak with a licensed Progressive Life by eFinancial representative who can help you find the right policy for you.

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Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.