Indexed universal life (IUL) has become a popular form of life insurance protection in recent years. That is likely due to its ability to provide you with death benefit protection for your loved ones along with the following features:
- flexibility of payments – you have the option to change the amount of premium you pay
- adjustable protection – if you have changing life circumstances, you can adjust the value of what your policy is worth
- Growth potential – your policy’s cash value can grow based on the performance of market indices
- Protection from losses – although your policy’s cash value can increase based on market performance, you can’t lose money as a result of market losses
While these are some of the standard benefits you can expect, not all IUL policies are the same. There are different benefits and features among them, and it is important you understand how all of these will impact your IUL policy. Most life insurance policies are big purchase decisions, so it’s highly recommended that you speak to your financial professional with any questions you have. While these may not be all the questions that you may have, here are three things you should definitely ask them when looking at an IUL.
What are your options for accessing your cash value?
The cash value that accumulates within your IUL policy can be accessed to supplement your retirement income, fund a college education or pay for any unexpected expenses. The two methods to access the cash value are through policy loans or full or partial surrenders of the policy. Your IUL policy may offer different types of loans. Make sure you discuss the pros and cons of the loan types available to you with your financial professional. A full or partial surrender of your policy has very different implications and should also be discussed.
What impact will fees have on your IUL’s cash value?
With any IUL policy you are considering, you need to ask about fees. You may choose to select optional features with your policy known as riders. These can provide living benefits that customize how the policy works for you. They may include financial help if you are chronically or terminally ill, access additional coverage for yourself in future years, extend life insurance coverage to your children and more. Knowing the cost any additional riders you select is an important discussion you need to have with your financial professional.
Different IUL policies have different levels of internal fees. The fees come from different options on a policy, such as boosting potential policy performance or offering additional protection options. One thing they all do is reduce cash values. AuguStar Life’s Virtus Indexed Universal Life II policy is focused on lower expenses to help make a better policy experience for most clients.
How will an IUL perform in different markets?
One way a financial professional can help you understand the differences between one IUL policy versus another is to run an illustration. This hypothetical scenario can show you how the policies could perform for you over time, especially in regards to the build-up of cash value within the policy and its distribution. Because you have the option to allocate your IUL premiums into an index based account (such as the S&P 500 or Russell 2000) you can see the potential increase in the cash value.
While it’s easy to get excited over any IUL’s potential during positive market conditions, it’s also important to know what might happen during challenging market conditions. Remember how we just said you need to consider fees? Imagine a few consecutive years where the markets are down. While your IUL may have a 0% minimum interest crediting rate, you have to consider any fees your policy may incur. A bad year of returns plus added fees for your policy could be an unwelcome surprise. A lower fee product like AuguStar Life’s Virtus IUL can help reduce costs during years of zero performance.
An IUL can be a great option for many seeking death benefit protection, flexibility and the opportunity to build cash value for their future. It is safe to say that when you take an IUL and add all of its available options, it can make for a very complex life insurance product.
Understanding all of the ways it can help you can seem overwhelming. It really is important to work with your AuguStar financial professional to determine what IUL works best for you now, while also giving you the flexibility to meet any changes in your future years. They will help answer the questions above and more when helping you determine if an IUL is for you.
Products are issued by and guarantees based on the claims-paying ability of the AuguStar Life Insurance Company and AuguStar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by the AuguStar Life Insurance Company.
Standard & Poor’s®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the AugStar Life Insurance Company.
The AuguStar Life Insurance Company’s Orbiter annuity is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500® Index.