As part of Life Insurance Awareness Month which occurs each September, we wanted to highlight a type of insurance that can be helpful for some clients who seek insurance as part of their financial plan. Known as IUL, indexed universal life insurance is permanent insurance that can be purchased at nearly any age.
As with all life insurance products, underwriting is required for IUL, but because of our close relationships with insurance carriers, we can help you with a simple pre-qualification assessment based on key health factors before your client goes through with the longer application process.
Here are 6 key features of indexed universal life (IUL) insurance:
- The Classic Death Benefit
The classic benefit of every life insurance policy, including IUL, is the death benefit, which is typically paid out to the policy’s named beneficiaries tax- and probate-free in the event of the policyholder’s death.
- Permanent Coverage
IUL policies offer permanence, which can make them a viable option for all ages. Increasingly popular, indexed life policies are sometimes purchased by healthy seniors as a way to transfer tax-advantaged wealth as part of their estate plan, especially important as the estate exemption amount is set to lower to around half for the 2026 tax year.* Or seniors may elect to purchase a policy which has long-term care benefits either built in or added as an optional rider to an IUL policy.
- Flexible Premiums
One of the key differentiators between whole life and indexed universal life is flexible premiums. IUL policies allow policyholders to determine the monthly premiums they pay based on their desired death benefit and/or cash value in the policy. For instance, if a client’s need for a high death benefit is not as great as it once was, they can lower the death benefit and either pay lower premiums or add the extra dollars to the cash value, as long as they follow all contract terms to keep their policy in force.
- Accessible Cash Value Portion
Because an IUL policy’s premiums are paid with post-tax dollars, that cash value is accessible to the policyholder for any reason as a tax-free loan, potentially making IUL a useful source of income for retirement, postsecondary education, a downpayment for a home, or any other major expense. While borrowing from the cash value of a policy does accrue interest per policy terms, the cash value continues to be credited interest as if the borrowed amount is still there. That gives the cash value a chance to keep pace with, or even outpace, the amount the policyholder owes in interest. Furthermore, if the policyholder uses the cash value as a tax-free source of retirement income and never pays it back, the borrowed amount plus interest is simply taken from the death benefit. It’s important to read and follow the contract terms carefully to make sure that the policy stays in force whenever the cash value is borrowed.
- Guarantees Provided by the Claims-Paying Ability of the Insurance Carrier
The cash value in an IUL policy comes with guaranteed principal protection and growth that correlates with a selected market index, although it is not actually invested in the market. This allows clients to participate in at least a portion of the market’s upside without subjecting them to its bottomless floor.
- Long-Term Care Hybrid Policies
Modern IUL hybrid policies can give policyholders the option to combine their life coverage with long-term care coverage, eliminating the “use-it-or-lose-it” aspect of long-term care policies of old. If your client needs the benefit to pay for long-term care, it can be used to pay for those expenses, but if they don’t, it can be converted to a death benefit for your beneficiaries.
If you would like a customized IUL case design for your client, please call the Quantum life team at 800.440.1088!
*If you have a client with a more complex estate planning situation, for example, if they own a business or other highly-valued assets, our advanced planning team in conjunction with attorneys and CPAs can help you design potential strategies using insurance inside various types of trusts.
Kim is life/health licensed and has worked in the life insurance industry since 1995. Kim spent 16 years at Northwestern Mutual and New York Life working her way from a field assistant to office manager. Because of her extensive experience, she brings a wealth of skills to Quantum. She has acquired the ability to analyze complex alternatives to meet client needs, find efficiencies in application processing, fulfill stringent insurance carrier compliance, and has built strong relationships with numerous carriers top underwriters. Learn More
