Indexed Universal Life insurance, commonly called IUL, is a type of permanent life insurance that provides a death benefit along with a cash-value component.

Unlike whole life insurance, an IUL typically offers more flexibility in premiums and death-benefit options. Its cash value can earn interest based in part on the performance of a market index, such as the S&P 500, without the policy being directly invested in the stock market.

When you pay premiums, part of the money goes toward the cost of insurance and policy expenses, while the remainder may be credited to the policy’s cash value.

The cash value can earn interest using an indexing formula. Growth may be affected by features such as:

• Participation rates
• Caps
• Spreads
• Floors
• Policy charges and expenses

Most IULs include a floor that can limit losses from a negative index year, but the policy can still lose value because insurance costs and other charges continue to be deducted.

Cash value may be accessed through loans or withdrawals, subject to the terms of the policy. These can reduce the cash value and death benefit and may create tax consequences if the policy lapses or is surrendered.

An IUL may be appropriate for someone who:

• Needs permanent life insurance
• Wants flexibility in premiums or death-benefit structure
• Understands that cash-value performance depends on policy terms and indexing features
• Can fund the policy consistently over a long period
• Is comfortable with a more complex life insurance product

IULs are not simple savings accounts and should not be judged only by illustrated growth rates. The cost of insurance, policy expenses, caps, participation rates, and long-term funding all matter.

NOTE: IUL's need to be over funded to perform correctly.  If not funded properly it will most likely fail with a potentially significant loss to the client.

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