INDEX UNIVERSAL LIFE

INDEX UNIVERSAL LIFE


Index universal life insurance, or IUL, is a type of permanent life insurance that combines a death benefit with a cash value component that can grow based on the performance of an underlying index, such as the S&P 500. Here are some of the benefits of index universal life insurance:

PREMIUM OPTIONS

IUL policies generally offer flexibility in premium payments, allowing policyholders to adjust their payments to fit their changing financial needs. There are typically three premium payment options:

It's important to note that IUL policies require a minimum premium payment to keep the policy in force. This minimum premium payment is typically set at the beginning of the policy term and is based on the policy's premium load, mortality and expense charges, and other factors. If the policyholder does not pay the minimum premium, the policy may lapse or lose its death benefit protection.

DISBURSEMENTS

Disbursement of funds from an IUL policy can be made in a few different ways, depending on the policy's features and the policyholder's needs. Here are some of the ways that disbursements can be made from an IUL policy:

IUL TO BUILD WEALTH

An IUL policy is a type of permanent life insurance that offers a death benefit as well as a cash value component that grows over time. The cash value component of an IUL policy is linked to a stock market index, such as the S&P 500, and typically has a floor, participation and a cap rate.

The FLOOR rate is the minimum rate of return that the cash value component of the policy will earn, regardless of how the stock market performs. If the stock market index has a negative return, your cash value will be locked in and your cash value will not lose value. Some IUL and Fixed Indexed Annuity policies also have a guaranteed minimum interest rate.

A Participation Rate account will generally pay a stated percentage of the performance of the index. For example, if the insurance company has a 60% participation rate for a given index and the index performs at 30%, the cash value will be credited 18% (60% x 30% = 18%).

The CAP rate, on the other hand, is the maximum rate of return that the cash value component of the policy can earn in a given year. For example, if the insurance company has a 13% cap rate for an index and the index performs at 30%, the cash value that will be credited is13% only.

Here are some ways that an IUL policy can help build wealth:

It's important to note that IUL policies can have surrender charges, fees, and other costs associated with them, and that policyholders should consult with a financial professional or insurance agent to understand the policy's features and potential risks before purchasing.

 

Why would you choose one account over the other? Different accounts perform best during varying economic times. Using the example above, if the index performed at 13%, the cash value would have received 13% in the Cap Rate Account but only 7.8% in the Participation Rate Account (60% x 13% = 7.8%). However, if the index performed at 25%, the Cap Rate Account would have capped the interest credit at 13%, while the Participation Rate Account would have paid 15% (60% x 25% = 15%). The key is diversification. With diversification, you do not need to worry about how the index is performing.

Consider the below graph which compares an Indexed Account to Large Company Stocks from August 1997 until August of 2014. As you can see, when the market had losses, the indexed account was locked in and lost no value. Remember, your losses hurt you more than your gains help you.


OWNERSHIP OPTIONS

CONTINGENT OWNER

In an Indexed Universal Life (IUL) insurance policy, a contingent owner is a person or entity who is named as a backup or secondary owner of the policy in case the primary owner is unable or unwilling to continue as the owner.

The contingent owner does not have any ownership rights in the policy unless the primary owner dies or becomes incapacitated. At that point, the contingent owner would assume ownership of the policy and become responsible for making decisions about the policy going forward.

The purpose of naming a contingent owner is to ensure that the policy remains in force and the intended beneficiaries receive the death benefit in the event that the primary owner is no longer able to manage the policy. For example, if the primary owner dies and there is no contingent owner named, the policy may become part of the owner's estate and be subject to probate, which could delay or reduce the payout to beneficiaries.

It's important to note that the contingent owner designation can be changed at any time during the policy's lifetime, typically by completing a form provided by the insurance company.

Naming a contingent owner for an Indexed Universal Life (IUL) policy is not a requirement, but it can be a good idea in certain circumstances to help ensure the policy remains in force and that the intended beneficiaries receive the death benefit as quickly and efficiently as possible.

In the case where the spouse is named as the primary beneficiary, some people may choose not to name a contingent owner because they assume that the spouse will automatically become the owner of the policy if the primary owner dies or becomes incapacitated. However, it's important to note that this is not always the case.

In some situations, the spouse may not be able or willing to assume ownership of the policy, or there may be legal complications that prevent the spouse from doing so. For example, if the spouse is also incapacitated or has passed away, or if the couple is going through a divorce, the ownership of the policy may become more complex and time-consuming to determine.

In an Indexed Universal Life (IUL) insurance policy, the spouse can be named as the contingent owner. In fact, it's a common practice to name the spouse as the contingent owner of the policy.

By naming the spouse as the contingent owner, the policy will remain within the family and there will be no need for probate or court involvement in the event of the primary owner's death or incapacitation. Additionally, the spouse will have full control over the policy and be able to make decisions regarding the policy's management and distribution of the death benefit.

Having a contingent owner named in the policy can help ensure that the policy remains in force and the intended beneficiaries receive the death benefit in a timely and efficient manner, regardless of the circumstances surrounding the primary owner's death or incapacitation. It's generally recommended to consult with a financial or legal professional to determine whether naming a contingent owner is appropriate for your specific situation.

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