Living Benefits of Index Universal Life Insurance
Many life insurance policies are there to protect your loved ones from any financial instability should the unexpected strike. That’s not the case with all forms of life insurance though. Index Universal Life insurance (IUL) is one of those cases.
This form of permanent insurance not only provides death benefits to your beneficiaries but it can also help you become financially secure or supplement your retirement while you’re alive. Of course, you can also add in additional riders — providing your policy allows for the riders you’re interested in — to increase the benefits this policy can add throughout your lifetime.
Loans are a tricky topic for some people, especially when taxes get thrown into the mix. That’s why some opt for Index Universal Life insurance when they shop for life insurance. While it’s not necessarily encouraged, you can take out a (typically) tax-free loan from your IUL policy. Whether or not your loan is actually tax-free may depend on which state you live in and how the income tax laws work, so check with a financial or tax professional before deciding to take out this loan.
Should you decide to take a loan, remember to repay it as soon as possible so that your account continues to earn interest on the cash value. Or if you fail to repay the loan, you policy may be at risk of lapsing, meaning all of the money you’ve paid on your premium will be null and void, and you’ll no longer be insured.
Cash Value Accumulation
This is a big living benefit that woos people into opening up an IUL. When you pay your premium every month, a part of it goes toward your actual policy premium (this amount will vary from person to person based on age, health, etc.) and a portion will go towards your cash value that is leveraged against an index. That cash value will increase if the index goes up, but you have no risk if it goes down.
Now, while you can of course use this to take out those tax-free loans, what many people choose to use this money for is to help them plan for their retirement and use it to help supplement their retirement income. These withdrawals won’t likely be tax-exempt, but the upside is that you can begin making withdrawals before the age of 59 ½ without paying a penalty, which isn’t always the case with retirement accounts. Think of it as a retirement account similar to your 401(k) or traditional IRA, only this time it also offers protection for your beneficiary.
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