Indexed universal life(IUL) insurance is a type of permanent life insurance — a life insurance policy that stays in effect for your whole life as long as the premiums are paid.
What makes indexed universal life insurance unique is the “indexed” part. These policies have a minimum guaranteed interest rate (so you won’t lose money).
An index is essentially a group of investments like stocks or bonds. The S&P 500 and the Nasdaq 100 are examples of indexes. The insurer doesn’t directly invest in the market, but uses the interest rate and performance of a specific index to set the interest rate for your policy.
What Are the Benefits of IUL Insurance for Retirement?
One of the most attractive features of an IUL is the ability to take advantage of stock market returns without the risk of loss. And it does so while building up a death benefit that your beneficiaries will receive tax-free.
Other benefits of indexed universal life insurance include:
Unlimited contributions: Traditional retirement avenues have contribution limits, but IULs don’t.
Tax-free growth and distributions: IUL distributions are tax-free versus tax-deferred in the other vehicles. That means you don’t have to pay taxes on the money you eventually draw from the cash value of the IUL. It’s similar to a Roth IRA in this respect.
Use at any time: With regular retirement programs, you have to wait until you hit the 59.5 minimum age for distribution before you can start taking money out. With an IUL, there is no age requirement.
Death benefit: A tax-free death benefit is distributed to your beneficiaries, which means it won’t face income or death taxes.
Loan availability: Depending on your policy and available cash, you can borrow money from your IUL without facing penalties, taxes or a credit check. You also do not have to pay back the money you take out.
The video below gives you a brief overview of what an IUL can do for you.