Not really because I linked to the source of the material posted and I DO NOT claim the writers words as my own.
But if I would have written the article I would have said.....
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What is IUL?
The dynamics of the last decade resulted in a new approach to permanent life insurance. Consumers liked the higher return potential of linking cash value growth to equity markets in VUL, but didn't like the possibility of losing cash value if the market went down. To meet these needs insurance companies developed indexed universal life or IUL.
IUL shares the coverage and premium flexibility of other universal life policies, but the crediting of interest is unique. Typically, cash value increases are linked to positive changes in an equity index. If the index is higher at the end of the policy year the interest credited to the cash value will reflect this. So, if the calculated index is higher at the end of the year the cash value will participate in a percentage of this increase.
What if the index goes down? If the index stays flat or declines the cash value is still credited with a minimum guarnteed interest rate. This is the attraction of IUL. When the index goes up the policy owner shares in the increase, but if the index goes down the policy still earns at least a minimum interest rate.
It should be noted that the cash value will probably not reflect all of the increase in the index nor are dividends or capital gains included in the index calculation. Protecting the cash value from market loss and guaranteeing a minimum return costs money, and money used to protect the cash value means a reduction in maximum potential returns. Even so, IUL offers many features.
How is interest credited?
An IUL policy works like other universal life policies. Premium paid and interest earned are added to the policy value, and policy expenses and the cost of insurance are subtracted. The only difference is interest earnings are linked to the performance of an external index.
Let's say that we have an accumulated value of $10,000 and a minimum interest rate of 2%. We'll further assume that we receive 100% of the calculated index gain for the year up to a maximum of 7%. At the end of the year the calculated index gain is 10%. The accumulated value would earn 7% for the year $700. So, our accumulated value would now be worth $10,700 ($10,000 plus $700).
But what if the market dropped 10% the following year? The locked-in value of $10,700 would be unaffected by the market decline and would earn 2% or $214 ($10,700 time 2%) leaving an accumulated value of $10,914. The policy receives the greater of minimum guaranteed interest rate or the excess interest earned from the calculated index gain.
_________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
Right, that indexed universal life or the EIUL has gained popularity in recent time. And its a good option for people looking to invest into the equity market but at the same time don't want to lose out their entire fund when the market slumps. The guaranteed return of 2% -3% promises safety to the investment of the policy owner.
One can built an asset for the future through the indexed universal plans. It can be utilised as well as an annuity plan to ensure income after retirement. However, couple of things that require consideration while applying for an indexed plan are
* the liquidity of the fund-that's one thing promised by the companies, but you need to find out whether its actually so or not.
* performance of the investment funds and the risks associated with them.
* taxes on the return- normally the return on any life policy is tax free, but still you need to find it out properly. It may incur taxes under special circumstances. _________________ Register Now to have your Insurance queries solved.
So, you guys suggest that IUL is a good investment option. Can anyone invest into it with limited fund? or you need to put lump sum fund into it at a single go? _________________ Register Now to have your Insurance queries solved.
Nobody has ever or will they ever get rich by paying a premium to a life insurance company, have the cost of insurance and expenses deducted, then interest credited.
Indexed Universal Life is just another method by which to credit excess interest to a policy's cash value and the ONLY reason any life insurance policy developes a cash value in the first place is because you paid in MORE premium than what it costs the insurance company to provide the death benefit and they credit interest on that money.
gladiator frm Roma wrote:
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taxes on the return- normally the return on any life policy is tax free
Tax Deferred NOT Tax FREE and just to make things clear....NOT exactly and Yes, maybe.
If the contract is a Modified Endowment Contract (MEC) cash withdrawals will be taxed as ordinary income up to your cost basis known as LIFO, Last In - First Out. Meaning interest was paid in last - interest was taken out first.
If it's not a MEC then cash withdrawals will be taxed FIFO, First In - First Out, Money paid in first - is the money paid out first. Your "cost basis."
To have totally tax free withdrawals you'd take withdrawals to your cost basis then loans thereafter in a non-modified endowment contract.
The basic stuff the policy full of cash up to the guideline premiums, let tax deferred interest do its thing....then if you no longer NEED to provide the death benefit for someone you'd have an additional income stream to augment retirement. _________________ Gary Spicuzza, *SAFE
Copyright 1956.
No rights reserved.
*Self Appointed Financial Expert
