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How Does An Indexed Universal Life Insurance Policy Work?

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Are you interested in getting a life insurance policy, but confused by all the different products that are out there? You may know about term and whole life insurance policies, but want to learn more about an indexed universal life insurance policy (IUL). Here are the basics of how this type of policy works. 

IUL Works For Your Retirement

One misconception about life insurance products is that they only pay out to your beneficiaries after you pass away. This is not true with an indexed universal life insurance policy, which is designed to help you save for retirement. That's because there is an investment component to the policy where you can take money out of it.

What makes an IUL policy so unique is that you can borrow from your death benefit. The money that you pay towards the premium grows over time, and you can borrow from your death benefit for your retirement. If you do not pay back the money that you borrowed, it is taken out of the death benefit after you pass away.

IUL Grows With The Stock Market Risk-Free

Some people do not save for retirement because they are worried about the risks that come with investing. They do not want to end up in a situation where they lose all of their money because they invested at the market's peak and then found they lost money once the peak died down. This is not the case with an IUL policy.

Be aware that earnings can be capped on both the upside and the downside. Performance is tied to the performance of the stock market, but there is a maximum and minimum amount of return that you get based on how well the stock market is doing. When the market is performing poorly you will not see any financial losses from your IUL policy, which means you don't risk losing anything. The trade-off is that gains are capped at a specific percentage. While you do not get the total potential maximum gains, the risk is taken away if the market performs poorly. This can be a huge benefit if you are a risk-averse investor. 

IUL Requires A Monthly Contribution

Much like any life insurance policy, there is a monthly premium that you must continue to pay to maintain your IUL policy. If you are unable to pay for that monthly premium, then it is possible that you will lose access to the policy and all of the benefits you built up over the years.