What is an Indexed Universal Life Policy?

An Indexed Universal Life (IUL) policy is a type of permanent life insurance that provides a death benefit while also offering the opportunity to build cash value. The cash value grows based on the performance of a specific stock market index (like the S&P 500), but with built-in protections to prevent loss during market downturns.

• Market-Linked Growth- Your cash value grows based on the performance of the chosen index, allowing you to benefit from stock market gains without directly investing in it.

• Downside Protection- Even if the market performs poorly, your IUL policy includes a

  floor, ensuring you won’t lose money due to negative market returns (typically, the floor is 0%).

• Flexible Premiums- IULs allow you to adjust your premium payments, giving you more control over how much you contribute and when.

Why Are IULs Becoming So Popular?

In recent years, especially since the onset of Covid-19, more people have started exploring financial tools that offer security, growth, and flexibility. The rise of social media platforms like TikTok has brought IULs into the spotlight, with many influencers and financial educators promoting them as a smart tool for both life insurance protection and wealth accumulation. However, it’s important to note that not all agents properly explain the funding requirements of IUL policies.

To maximize the benefits, an IUL policy must be funded properly. Underfunding the policy can result in insufficient growth, higher fees, or even the policy lapsing over time. Working with an experienced professional is critical to ensuring your IUL is designed and funded to meet your long-term goals.

Why IULs Are Great for the Younger Generation and Children

IUL policies are especially advantageous for younger individuals and children because they offer maximum growth potential over time.

Here’s why:

• Time is on Your Side- The earlier you start; the more time your policy has to accumulate cash value through compound interest and market-linked growth.

• Affordable Premiums for Younger Ages- Premiums are typically much lower for younger individuals or children, allowing you to secure a policy at a cost-effective rate.

• Tax-Advantaged Growth- The cash value in an IUL grows tax-deferred, meaning you won’t pay taxes on the growth until you access the funds.

• Flexible Access to Funds- You can borrow against the cash value for major life expenses, such as education, buying a home, or starting a business, without triggering taxes (when structured properly).

• Lifetime Financial Security- Starting an IUL policy for a child ensures they have both a life insurance benefit and a financial asset for the future.

How Does an IUL Accumulate Cash Value?

The cash value in an IUL policy grows based on the performance of a stock market index, but it is not directly invested in the stock market.

Here’s how it works:

1. Market Participation:

2. Your policy’s cash value earns interest based on the performance of a selected index, such as the S&P 500.

3. Caps and Floors:

4. While there’s typically a cap on how much interest you can earn (e.g., 10-12%), there’s also a floor (e.g., 0%), meaning you won’t lose money even if the market performs poorly.

5. Long-Term Growth:

6. Over time, the cash value has the potential to accumulate significantly, thanks to market-linked growth and the power of compounding.

The Importance of Proper Funding

One of the most critical elements of an IUL policy is proper funding. Without adequate funding, the policy may not perform as expected, leading to higher fees or the risk of the policy lapsing.

Here’s what you need to know:

• Overfunding for Maximum Growth- To maximize the cash value accumulation, many policyholders choose to overfund their IUL up to the IRS limits. This allows for more money to grow tax-deferred without triggering tax penalties.

• Avoiding Underfunding- Underfunding your policy can result in poor cash value growth and may cause the policy to become unsustainable over time.

• Work with an Expert- Not all agents properly explain how funding impacts the performance of an IUL policy. It’s essential to work with a knowledgeable advisor who can design a plan tailored to your goals and ensure it’s properly funded.

Why Choose an IUL Policy?

An IUL policy offers a unique combination of life insurance protection and wealth-building potential, making it a versatile tool for individuals and families.

Here’s why people are choosing IULs:

• Protection and Growth in One Policy- Combines permanent life insurance with the opportunity to grow your cash value.

• Tax-Advantaged Benefits- Offers tax-deferred growth, tax-free withdrawals (if structured properly), and a tax-free death benefit for your loved ones.

• Flexibility- Allows you to adjust premiums and access cash value as needed.

• Peace of Mind- Provides downside protection, so you never have to worry about losing money during market downturns.

• Long-Term Asset for Younger Generations- Ideal for younger individuals and children, ensuring they have a financial asset that grows with them over their lifetime.