Key Features of Indexed Universal Life Insurance:

1. Death Benefit: Like traditional life insurance, an IUL provides a death benefit to beneficiaries upon the policyholder’s death. The death benefit can either be level (fixed amount) or increasing (grows over time) based on the policy’s accumulation of cash value.

2. Cash Value Growth: One of the most notable features of an IUL is the cash value accumulation, which grows based on the performance of a stock market index, like the S&P 500. The policyholder’s cash value is not directly invested in the stock market but instead tied to a chosen index, which determines the interest credited to the cash value.

   • Interest Credit Mechanism: The insurance company credits interest to the policy’s cash value based on the performance of the chosen index. If the index performs well, the cash value increases, but if the index performs poorly, the cash value may remain the same, though it typically won’t decrease (most policies have a “floor” of 0%, meaning no negative returns).

   • Caps and Participation Rates: The growth in cash value is typically subject to a cap (maximum interest that can be credited) and a participation rate (the percentage of the index’s return that the policyholder receives). For example, if the cap is 10% and the index earns 12%, the policyholder might only receive 10% interest, even though the index performed better.

3. Flexible Premiums: One of the standout features of an IUL policy is its flexibility. Policyholders can adjust their premiums based on their financial needs. Unlike whole life insurance, where the premium is fixed, IUL policies allow for changes in the premium amount, within certain limits. You can pay more to increase the cash value or less if you’re facing financial difficulty, as long as there’s enough premium paid to cover the policy’s costs.

4. Flexible Death Benefit Options: IUL policies allow policyholders to choose between two main death benefit options:

   • Option A (Level Death Benefit): The death benefit remains the same throughout the life of the policy.
   • Option B (Increasing Death Benefit): The death benefit increases over time as the policy’s cash value grows. This option offers greater death benefit protection but typically comes with higher costs.

5. Loans and Withdrawals: IUL policies allow policyholders to borrow against the accumulated cash value or make withdrawals. Loans are typically tax-deferred, but if not repaid, the loan balance (including interest) is deducted from the death benefit. Withdrawals, on the other hand, may be subject to taxes if they exceed the policy’s cost basis (the amount paid into the policy minus premiums and loans).

6. Cost of Insurance (COI): Like other permanent life insurance products, an IUL has a cost of insurance. This cost increases with age, and it covers the expenses related to the insurance protection provided by the policy. The COI is deducted from the policy’s cash value.

7. No Direct Stock Market Exposure: While the cash value is linked to an index, the policyholder is not directly invested in the stock market, which means there is no direct risk of losing money due to market fluctuations. However, the policy may experience limited growth in flat or underperforming market conditions due to caps or participation rates.

Who Might Benefit from an IUL?

IUL insurance can be beneficial for individuals who:

• Are looking for permanent life insurance that offers a flexible premium and death benefit.
• Want the potential for higher cash value growth linked to market indices, without directly investing in the stock market.
• Are willing to accept the complexities and the possibility of variable returns in exchange for potential upside.
• Are seeking a way to accumulate wealth in a tax-deferred manner.