Indexed Universal Life

By on May 3, 2018

This article is intended to provide the reader a simple explanation of what Indexed Universal Life Insurance is, how it works, and how it is used to save for retirement. With proper execution, an Indexed Universal Life (IUL) policy will provide you with the only insurance that has a rate of return higher than whole life or universal life with no market risk or losses, along with the capability to create a tax-free cash flow in retirement. This means that you can take loans from your contract that will be free of federal, state, and local income taxes, as well as alternative minimum tax. IUL also creates a tax-free death benefit by providing funding of the retirement plan at death.

Instead of an insurance company setting the interest rate of return on your investment, an IUL Policy earns interest based on the upward movement of major stock market indices, such as the S&P 500. An insurance carrier gives interest credits to the IUL contract by investing in bonds and index options. You earn a portion of the index’s gain when it goes up, and a guarantee that a decline in the IUL value due to declining values in the stock index will not affect your original value.

In using an IUL policy to save for retirement, once you stop paying premiums and begin taking cash out as contract loans, the insurance coverage does not end. In fact, you can continue to be insured for the rest of your life without having to pay additional money into your contract.

In retirement planning, you need to minimize the impact of taxes on your income, thereby increasing the cash flow needed to meet your retirement expenses. Remember, insurance is the only vehicle that you can accumulate and access without any tax consequence.

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About Terri A. Kamoto

Senior writer for FSN - Terri is a former financial analyst dedicated to making personal finances, budgeting, investment and insurance advice accessible, up to date and easy to understand. It is hard to find professional advice written in a language someone without a financial background can understand. Terri helps companies synthesize industry lingo and expertise into clear and informative content which builds smarter, financially successful individuals. You can find Terri on !

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