Indexed Universal Life Insurance Myths

Indexed universal life insurance is a type of permanent life insurance. It offers both a death benefit and a cash value. The growth of the cash value is directly tied to an index. It is a bit more complex than a traditional whole life policy, so there are some misconceptions that surround it. In this article, we will debunk 7 indexed universal life insurance myths.

1. IUL is a Set it and Forget it Product

You do not just want to purchase an indexed universal life insurance policy and just leave it. Your policy contains a cash value that you will want to monitor. Since premiums are flexible, they should be monitored to ensure that you properly fund your policy. Your cash value can also be connected to an index. You will want to watch how this performs to avoid lapsing your policy or reducing your death benefit. You should at least review your policy on an annual basis to ensure it is keeping in line with your financial goals.

2. You Will Have Unlimited Potential

Generally, indexed universal life insurance policies come with caps on maximum return. Insurance companies generally cap returns because they take on risk by offering downside protection. This means that when the index is down you will not lose funds.

3. Cash Value Growth is Guaranteed

While there is downside protection, IULs do not come with guaranteed growth. Your growth is directly tied to the performance of your chose index. This means if the index performs poorly you may see little to no growth in your cash value.

4. An IUL is Only Appropriate for Wealthy Clients

An IUL can be customized to fit many income levels. Middle-income clients generally love the premium flexibility that they afford. All income levels can benefit from the death benefits as well as the ability to use their cash value for funding college or retirement income.

5. You Can Quickly Build Cash Value

Indexed universal life insurance policies are not designed for quick wealth accumulation. The cash value is made to grow gradually. The accumulation of cash value may be especially slow in the early years of the policy when a large portion of the premium will be going towards policy charges and fees. Additionally, it takes several years for any growth from the index fund to be meaningful.

6. Any Growth is Free

IULs offer tax-deferred, not tax-free growth. This allows your cash value to grow without immediate taxation. A benefit of an IUL is that you can usually access the cash value through loans that will not trigger tax liabilities. What is more is that death benefits are most often tax free.

7. You Should Replace Your Retirement Account With an IUL

Your IUL should be just one component of your retirement strategy that fits in with a long-term plan. You do not want all your eggs in one basket, you should diversify.

Purchasing an Indexed Universal Life Insurance Policy

If you want to add an indexed universal life insurance policy to your financial plan, meet with a qualified insurance agent who can help you purchase a policy.

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