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Your Financial Life
By Transamerica / Oct 7, 2015

Index Universal Life Insurance (IUL) Part Two: Is IUL Right for You?


In part one of our series on Index Universal Life Insurance, we described what exactly IUL is, and how it provides the opportunity to accumulate cash value, while still maintaining all the qualities of a life insurance policy. In part two, we will examine the benefits of having an IUL policy more closely to help you decide if an IUL policy is the right type of life insurance for you and your loved ones.

The Benefits of Index Universal Life

As was outlined in part one of this series, an IUL policy offers permanent coverage of the insured while giving the policy owner a way to potentially accumulate cash value. IUL policies have the potential to accumulate cash value by crediting index interest when there are positive movements in a specified index, for example, the S&P 500®.

Another benefit of an IUL is any interest accumulates on a tax-deferred basis. That means no taxes are due on any gains in the policy during years in which they are earned or while they remain in the policy. And, when the cash value is sufficient, the policyholder can take tax-free distributions from the IUL. * And should the insured pass away, the policy’s death benefit is distributed federal income tax-free. The policy’s death benefit can be used in many ways, such as helping to pay outstanding debt, settling a mortgage, or paying estate tax.

How is an IUL policy flexible?

Beyond an index universal life policy’s ability to accumulate index-related cash value, another feature of an IUL is its flexibility. An IUL offers downside protection of the Index Accounts. The cash value is not invested in any securities or market index. So if the market falls dramatically, there is no loss in the policy’s cash value. As well, the death benefit can be adjusted by the policyholder should there be changes to the beneficiaries. Also, many offer Index Accounts that are based on some combination of indexes.

So how do I know an IUL policy is right for me?

For those who need permanent life insurance to help protect their loved ones, and who want a way to help accumulate funds on a tax advantaged basis and avoid market risk, index universal life insurance is worth considering.

What it comes down to is the question of whether or not index universal life insurance is an appropriate policy for you. If you have questions regarding index universal life insurance, please contact one of our Transamerica life insurance specialists.

* Policy owners should note that distributions reduce the policy’s death benefit and cash value and charges associated with distributions may apply.