If you want to take out universal life insurance, then you should take a look at indexed policies. How does this type of insurance work? Why should you consider using it? Continue reading to learn more.
What Is Indexed Universal Life Insurance?
In some ways, an indexed universal life insurance policy works like any type of universal insurance. As long as you pay your premiums, you get guaranteed death benefits, no matter how old you are when you die.
Plus, some of the money you pay into your policy also accrues a cash value. After your death, you could leave behind a useful cash lump sum for your family over and above your agreed death benefits. You will have built up savings in your policy.
Indexed policies work slightly differently from other universal life products because they tie your payments and your investment pot to a stock market index. So, part of the premiums you pay goes towards your death benefits with any surplus going into an investment account that tracks the product's set index.
Why Use Indexed Universal Life Insurance?
While regular universal life insurance might help you build extra cash to leave to your family as well as death benefits, your cash component is typically attached to a set rate of interest. Any cash you have in your policy will grow at an agreed rate.
While this system helps you save, it might not give you the returns you want. Your earnings here are limited by your interest rate. They might be guaranteed; however, they have cash benefits limits.
However, if you use an indexed policy, then your cash savings are tied to the product's stock market index. While your insurer will usually put caps on your investment, you can still accrue more money if you invest it rather than save it.
Long-term investment rates typically outperform cash savings rates. If market returns are good, then your cash balance should be higher in the end.
Indexed policies also suit people who want more flexibility in how they use their life insurance coverage. For example, you can often change your premiums or death benefits over time with indexed products. You can change how your insurance works to meet changes in your finances or personal circumstances.
As with any life insurance product, you should get expert advice before you choose which policy to use. To get started, contact an agent and ask them about their indexed universal life insurance options.
