An Indexed Universal Life insurance policy is different from other types of life insurance
because a portion of premiums paid are credited based on the performance of a particular financial index – such as the S&P 500 Index. If the index rises, the IUL account is credited with interest. However, if the index falls, your IUL account does not decrease, you do not lose anything. This is due to the fact that the IUL policy is a guaranteed life insurance product.
Here is how it works:
• A portion of premiums are invested in a financial index such as the S&P 500 (or other
• As the premiums accumulate, the cash value of the policy grows based upon the
performance of the allocations.
• IUL has a built-in zero percent interest-crediting floor, so an IUL policy will not lose value
due to a decline in the index.
• Tax Free distributions of cash accumulation can be triggered anytime, typically around
age 65 to assist with financial needs in retirement.
Here are some features of an IUL:
• Safety - IUL accounts are guaranteed to never lose your principle due to market
• Liquidity - You have access to your funds after the first year with no penalties.(ii)
• Flexibility – Premiums and Death Benefits are flexible.(iii)
• Taxes - An IUL cannot be taxed on distributions as long as it’s structured properly.
There is no tax on the growth. If you pass away, there are no taxes for your heirs.(iv)
• Growth Potential - The potential for growth is much higher than qualified plans.
• Contributions - No maximum on the amount of contributions.
• Death Benefits - A death benefit is provided on all plans.(v)
The S&P 500 is so often used because it is broad based, even during volatile periods of the
market; depending on the policy the guaranteed gain could be approximately 2-3%.(vi)
• Participation and Index Crediting - The gains from the index are credited to the policy
based on a percentage rate, referred to as the "participation rate". The rate is set by the
insurance company. It can be anywhere from 25% to more than 100%. For example, if
the gain is 6%, the participation rate is 50% and the current cash value total is
$10,000, $300 is added to the cash value [(6% x 50%) x $10,000 = $300].
• Caps – Policies have a “cap” rate. The “cap” determines the maximum amount of
interest that can be gained and credited to the policy. In generally policies offer
everything from no cap to 13% cap.
IULs are also flexible. If the funds grow faster than expected and the policyholder wants to
trigger the income stream earlier, he or she can do that - the same is true for a policyholder who wishes to wait an extra 5 years before disbursement. Even the amount contributed in a year can vary, though there is a minimum annual contribution required to keep the policy active.(vii)
IULs can be used for retirement planning, annuity maximizing, and estate planning. They may
also be used as tools for lowering the tax burden on an estate and providing a tax-free stream of income.
By consulting with Beacon Financial, clients gain an important ally on their journey toward
financial strength and stability. To find out if an Indexed Universal Life policy is right for your
goals, contact Beacon Financial Group at (888) 769-4333.
How is your policy working for you?
(i) It’s entirely possible that you could pay premiums every year and end up with NO cash value and NO death benefit, if the stock market indexes used don’t perform as projected.
(ii) Failure to meet premium requirements may result in a lapse in the policy and participation in the Index Accounts. The Index Accounts are subject to caps and participation rates. The surrender charge varies by product, gender, issue age, underwriting class and duration.
(iii) If you miss or delay making premium payments or loan repayments, which can reduce how long your death benefit guarantee stays in effect. And it can even void the guarantee altogether.
(iv) The tax-deferred feature of the indexed universal life policy is not necessary for a tax-qualified plan. In such instances, you should consider whether other features, such as the death benefit and optional riders make the policy appropriate for your needs. Before purchasing this policy, you should obtain competent tax advice both as to the tax treatment of the policy and the suitability of the product.
(v) The death benefit of an EIUL policy, like the premium, is flexible. The death benefit is not guaranteed—unless you have a no-lapse guarantee. If you have that guarantee, it simply means you’ll have a death benefit. But it doesn’t guarantee you’ll have any cash value, if the index performance is poor, or if costs go up, or both. And with no cash value to fall back on, you’ll have to continue to pay premiums out of your pocket to keep the death benefit in force.
(vi) Permanent life insurance requires monthly deductions to pay the policy’s charges and expenses, some of which will increase as the insured gets older. These deductions may reduce the cash value of the policy. Life insurance policies have terms under which the policy may be continued in force or discontinued. Current cost of insurance rates and interest rates are not guaranteed. Therefore, the planned periodic premium may not be sufficient to carry the contract to maturity. The Index Accounts are subject to caps and participation rates. In no
case will the interest credited be less than 0 percent. Please refer to the customized illustration provided by your agent for additional detail. The policy’s death benefit is paid upon the death of the insured. The policy does not continue to accumulate cash value and excess interest after the insured’s death.
(vii) Income and growth on accumulated cash values is generally taxable only upon withdrawal. Adverse taxconsequences may result if withdrawals exceed premiums paid into the policy. Withdrawals or surrenders made during a Surrender Charge period will be subject to surrender charges and may reduce the ultimate death benefit and cash value. Surrender charges vary by product, issue age, sex, underwriting class, and policy year.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Additional advisory services offered through Beacon Financial Group, a Registered Investment Adviser. Beacon Financial Group and NPC are separate and unrelated companies.