Index Universal Life insurance is a permanent universal policy and a hybrid of Variable Universal Life Insurance and Universal Life Insurance. The products came into the market in 1997 and have rocketed in popularity.  

Index Universal Life has a few more moving parts, but keep in mind that they share the same basic components of other Universal Life products – they are permanent life insurance policies designed with the potential for non-guaranteed, tax-advantaged cash value build-up.

The way the policy’s interest is credited is where it differs from other Universal Life products.  Index Universal Life is tied to an external index, typically the S&P 500. The interest credited to the policy will be based on the performance of that index, subject to a cap, a floor, and a participation rate.

For example, if an Index Universal Life policy has a 10% growth cap and the S&P 500 grows by 12% and it participates in the index 100%, 10% will be credited to the policy’s cash value. If the S&P 500 goes down -20% for the year and the policy has a 0% floor, 0% will be credited to the policy’s cash value.

The upside potential of the Index Universal Life policy is the opportunity for better performance than a Universal Life policy.  The downside protection in a down market is due to the built-in floor which protects you, unlike a Variable Universal Life policy that has no floor.  It’s important to note that, even with a floor, a policy still has charges deducted in down years.

Typical designs are:

  • Designed for cash value growth for tax-free retirement income.
  • Designed as a no-lapse guarantee substitute by offering lifetime guaranteed death benefits with some cash value growth.  
  • Designed for minimal premium requirements with some cash value growth for future flexibility.
  • Designed for living benefits such as Chronic Illness and Long-Term Care with some cash value growth.  

In general, Indexed Universal Life insurance is well-suited for:

  • Permanent death benefit protection, cash value growth with the most flexibility in premiums and coverage amounts.

  • Opportunity to grow cash values in greater potential than a Universal Life policy or Whole Life policy.

  • Those who desire to lessen the policy’s exposure to risk in a down market compared to Variable Universal Life policy.

  • Those who desire to have a policy that can help in case you die too early, need supplemental cash or become sick and need care.

What is the “BEST” life insurance for me?

You are probably wondering what type of life insurance you need and which is best for your situation. Life Insurance is a tool and each product is its own tool.  The key is to know what tool you need. 

We can help you with that.

Getting advice begins with a simple conversation.