Indexed universal insurance (IUL), a type of universal life insurance, allows you to earn interest tied to index funds like the S&P 500. However, your insurer may limit the rate of return. You may also achieve all or part of your cash value in fixed-rate accounts.
Some universal life insurance policies offer cash value as an option. You can borrow or withdraw money from cash value. If you are unable to pay your death benefit, your insurance company will reduce your beneficiary's payout by the amount of any loans or leaves. However, for some buyers accessing cash value may be more important than receiving a full payout to beneficiaries.
An UL policy will provide the insured with many benefits and permanent protection, as well as flexible premiums that can accommodate variable earnings. There may be options to invest your cash values in different market-based investment options depending on which life insurance company you have. This could give you greater growth opportunities. Universal life on the other side offers lower or no cash value guarantees.
A UL policy provides the insured with the same benefits and permanent protection as whole life insurance but also offers the flexibility to adjust for variable earnings. Depending on your policy and the life insurance company, you may be able to invest your cash in different market-based investment options. This can give you more growth potential. Universal life, on the other hand, offers lower cash value guarantees.
Further, the cash-value component earns interest according to a money index rate or a money markets rate of interest. Your cash value will increase, helping to pay your premium. In the event of financial changes, lowering your monthly payments may be a good option.
If you borrowed against your cash value, there is one exception. It isn't taxable if you repay the entire loan amount while your policy is active. Your policy could be canceled if the total amount borrowed (incl. interest) exceeds its cash value.
Universal life (UL) is one type of permanent life (the other is whole insurance). A universal policy is able to provide lifetime protection, build cash value, and offer tax benefits. UL also allows you adjust your premiums to make it more affordable than full coverage. This policy offers less guarantees than wholelife, as you may have to make lower premium payments for too much time. It can also impact cash value growth and your death benefit.