3 Reasons to Consider an Indexed Universal Life (IUL) Insurance Policy

Potential policyowners may consider IUL for any life insurance need. Initially, the insurer and policyowner may configure an IUL policy’s death benefit and target premium level to resemble virtually any type of life insurance policy from annually renewable term insurance to single premium whole life. However, both because of policy costs and because equity-type investments generally are more suitable for middle- to longer-term investment horizons, IUL generally is best suited for longer-term coverage needs. For short-term needs (less than five to ten years), a nonrenewable term policy generally will be more cost effective.

  1. Some sort of UL, including IUL for those people looking for some of the upside potential of equities in their cash values while being protected on the downside, is indicated whenever policyowners desire the ultimate in flexibility in life insurance. Policyowners whose circumstances change can later reconfigure the policy by changing their premium payments and/or the death benefit. IUL
  2. UL has been extremely popular in the family market and IUL is now not far behind in popularity. For example, young parents with growing families and modest incomes can acquire IUL policies that they initially configure with low premiums and high death benefits resembling traditional renewable term policies. As the parents’ incomes grow, they can increase premiums to build tax-sheltered cash within the policy. At later times when they need cash, such as to pay for a child’s education, they can reduce premium payments or stop them altogether and use the cash values to help pay the school expenses. After a time, they can increase premiums once again to build cash values. Similarly, if the amount of death protection that they need changes, they may decrease or increase the death benefit. However, increases in death benefits usually will require evidence of insurability.
  3. IUL also has become extremely popular in the business market where flexibility often is essential and the higher investment earning potential is very attractive. IUL is beginning to surpass UL as the preferred vehicle in all sorts of business applications including split dollar plans, funding for nonqualified deferred compensation plans, key person insurance, funding vehicles for buy-sell agreements, and even in insured qualified retirement plans.
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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