Indexed Universal Life (I UL) policies help you build wealth by leaving behind an untaxed death benefit for your family while building cash value over time. These policies place a percentage of the policy holder s policy premium payments toward annual re premiums with the rest added to your cash value upon death. While these types of policies have been proven to be effective, there are also some cons associated with them. I'll discuss those below.
If you want to see - Pros and Cons of Indexed Universal Life Insurance
One of the main pros of indexed universal life insurance is the ability to take advantage of any available premiums at any time. The premium payments remain constant, which keeps the policy at an even level in terms of cost and risk. This can be very important in areas where life insurance premiums have become expensive to maintain due to high life expectancy rates. With this type of policy you also have the ability to adjust the amount of your death benefit as your family's situation changes.
Another proof indexed universal life insurance is that you never have to pay the full face value of your policy. These types of policies also tend to provide flexibility in the kinds of returns that are achieved. The return may come in fixed or variable interest investments such as stocks and bonds and may also be a combination of both. While you won't have to come up with the entire face value of your policy upfront, you will have some money left over should you decide to cash out your policy for a variety of reasons.
One of the main cons of indexed universal life policies is that they don't offer any tax-free benefits. The death benefit of these policies is usually tax-free and it is the investment component that is taxable. Your cash value insurance policy's interest will be tax-free too. However, the investment component is tax-deductible for you and your dependents. You can include your interest in your taxable income if you itemize your deductions.
Many of these indexed universal life insurance policies will only provide a maximum cash value. The actual amount of cash that is left from your policy will depend on how much your policy is invested in order to earn the highest possible return. Most life insurance companies allow you to borrow against the face value of your policy but most of these policies will only pay out the face value.
When you borrow against your policy, the life insurance companies are actually investing your money in hopes that you will earn enough interest to cover your payments in the future. The reason that these types of policies are so popular with many people is that you never have to pay any taxes on the interest.
If you are planning on leaving this life insurance policy you may want to consider an indexed universal life insurance policy. These types of policies allow you to borrow against the death benefit of your policy, but they also allow for variable universal life coverage. This can come in handy when you need some cash down but you don't really know what you will need to replace your policy with. Variable universal life coverage can give you a lump sum payment or line of credit instead of paying into a savings or a cash value account. When you pay into a savings or a cash value account, however, the death benefit remains untouched.
You can find an indexed universal life insurance policy in most of the major insurance companies. They are usually sold in four different forms; term, whole life, Variable, universal life (VUL) and single premium. If you are currently holding a policy that is tax-free then you may want to consider getting an indexed universal life insurance policy.
In general these types of policies will have a lower premium than tax-free policies due to their lack of investment elements. However, the lack of investment element means that the death benefit will not be as high if you do not have enough cash accumulated to cover the entire death benefit on the policy. As a result, this policy could be a good choice for younger working people that are looking to purchase a policy that has an immediate death benefit.
With the constant changes that occur to the tax law, many people are choosing to switch to tax-free indexed universal life insurance policies. These types of policies allow you to borrow against the death benefit, but the payments are always tax-free. The benefit does not increase until you withdraw it, which means that you can never pay off the full death benefit. If you want an insurance policy that will always have an interest rate that is within two percentage points of inflation then you should definitely consider tax-free indexed universal life insurance policies.