December 16, 2023 | Fairlyeven
Building a Wealth Safety Net with IUL’s
Universal insurance offers payment flexibility that other lifetime policies don't while building cash value (wealth) over time. Indexed universal life (IUL) insurance takes it one step further with a savings component in which the cash value account reflects the performance of an equity index, stock, or bond.
IUL’s essentially come with a built-in wealth-building safety net, including tax-free growth of cash value and a death benefit. However, this type of life insurance isn’t for everyone. Read on to see if it’s a good fit.
How IUL’s Work to Safeguard Your Loved Ones and Build Wealth
Like all universal insurance policies, IUL's have adjustable premiums, meaning the policyholder can skip, underpay, or review the death benefit month-to-month. The difference is in how the cash value is invested. The cash value account will earn interest that mirrors the performance of a bond or stock index chosen by the insurance company, offering policyholders the potential for growing market-linked wealth without making any direct investment in stocks or bonds.
Policyholders can opt for a fixed-rate account, choosing how much goes into each. In addition, they can withdraw or borrow loans against the cash value accrued in their policies, subject to limitations specified by the insurer. Most policy providers guarantee a minimum interest rate, which can help cushion against losses.
How IUL’s Can Be Advantageous or Disadvantageous to the Policyholder
IUL's offer policyholders upside potential through flexibility in their premium payments, death benefit, and custom cash value accounts. You can build up cash value tied to stock performance without taking on direct market risk. Over time, the accumulated cash value can be used to cover, if not lower, premiums without dipping into the death benefit.
Another upside is the tax-advantaged cash value growth. The cash value account grows tax-deferred, allowing the policyholder to build wealth tax-free until they cash out.
The downsides include complexity, fees on loans taken, and higher premium costs compared to term life insurance. While bond or stock performance influences cash value returns, it exposes your account to potential losses.
While offering flexibility and tax advantages, it's crucial to weigh the complexities and costs. Explore more insights on Fairlyeven, a platform for business owners navigating diverse wealth-building strategies.
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