One of the most exciting things about an iul or index universal life insurance policy is that you can supercharge the cash value portion of your insurance policy. The policy builds cash value based on premium payments that are above the cost of insurance and other expenses and the performance of the underlying index.
One of the benefits of using an iul is that it is tied to changes in an indexed account which can allow you to enjoy the upside growth of the market while enjoying the protection from negative returns. So, you can go up without coming down in other words. The index account in the iul typically has a floor and a cap
Sometimes you could reach the cap which could give you double-digit returns in some years in the market has gains. Likewise, even though you would still have policy fees and expenses you will not receive a negative credit when the market has down turns. This means that when the market goes up your money can grow but when the market goes down you are protected and your money cannot receive a negative credit because of a market downturn, but you will still have policy fees and expenses.
This can be extremely beneficial during times of Market turbulence. In years when the market goes up so do your cash values and when the market Falls this is where the floor comes in and you receive a zero crediting, and you are protected against that loss. Your money is locked in so you don’t lose! However, you will have to pay the policy fees and expenses.
Now why is this so important? Because inflation is one of the biggest threats to Growing your money and what if inflation is running at 3 to 5% or even higher depending on the government’s monetary policy? It’s important to have your money outpace inflation. If your money is growing slower than the rate of inflation you aren’t growing your money – you’re actually decreasing the value of it over time.
The iul can allow you to outpace inflation by capitalizing on potential growth in the years when the market goes up. The cash value growth in your indexed universal life policy is linked to the S&P 500 but your cash is not actually invested in the market. Your money is protected from any Market loss because it is not directly in the market but at the same time you benefit from the growth of the S&P 500 up to a limit or cap.
Let’s say the upside cap is 12%. This can vary in policy to policy. This mean the cash value growth would be limited to just 12%. Having a cap is actually a good thing because this is what allows the insurance company to protect you against losses in those years when the market goes down.
Now you can have your money growing when the market goes up, you could outpace inflation with potential double-digit gains and you never have to worry about losing money when the market goes down. What kind of peace of mind would that give you knowing that your money is protected from Market volatility?
So the index strategy makes sense for people who want to avoid Market risk but still want the possibility of double-digit gains and all the other benefits that an IUL can give them. Using this strategy, you could save more money even without changing your current lifestyle.
The supercharged index and strategy could allow you to:
Benefit from double-digit gains in up years.
Help outpace inflation.
Grow your money tax-deferred.
Access cash values without incurring tax.
Provide cash flow for life.