Benefits to Owning an Indexed Universal Life Policy

There are many different types of permanent life insurance policies. Each type has its own benefits. Indexed universal life policies are the newest type of permanent policy. Many people are still unfamiliar with some of the advantages that these policies have to offer. Today, we will look at four benefits to owning an indexed universal life insurance policy.

We don't have to invest in the stock market

When investing in an indexed Universal Life Policy, the cash value portion of the contract is never actually invested in the stock market. The cash earns interest based on a crediting system that is linked to a market index.

The issuing insurance company generally buys high quality bonds with the premium payments. They may also buy call options on the respective index to help pay the interest needed when the index does increase.

We can still take advantage of the gains in the stock market

If the respective index goes up, the policy's cash value account is credited a portion of the market's increase. If the index drops or does nothing, the cash value will stay the same.

A common limit on the interest credit is 10%. So, if the linked index goes up 9%, the account will get the full 9% credit. If the index rises 15%, the account balance will get a 10% credit. On the downside, if the index falls by any percentage, the account will not be credited.

We have protection on the downside

We know that the market has historically performed well. But it can be hard to stomach the losses. This type of product allows us to still participate in the ups without being devastated during market crashes.

Granted, indexed universal life policies do not allow us to capture all of the market gains, but the opportunity to earn some gain and no loss can outweigh the results of taking on all of the gains and losses.

For a policyowner who may decide to withdraw or borrow the cash value in the policy, protection on the downside can be important. A market downturn just before needing access to the cash can severely impact the amount of money that will be available.

We can earn moderate returns

While some investors are overly ambitious in their quest for huge returns, we also know that slow and steady can win the race. If we invest early enough to have time on our side and can set aside enough money from our budgets, the return does not have to be huge.

There may be a cap on the upside, but the long term potential of compound interest on even a 6% annual return can make this a worthwhile endeavor.

Indexed universal life insurance policies may not work for everyone, but they do work for many individuals who need life insurance. We should carefully evaluate the terms of any life insurance policy we might consider to make sure that it meets the needs that we intended to cover.

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Ozeme J. Bonnette is a financial coach, speaker, and author. She began her career at Merrill Lynch, and now works to increase financial literacy. She teaches and speaks to groups and organizations throughout the U.S. She earned 3 Bachelor's degrees at Fresno State and an MBA at UCLA's Anderson School. She blogs at http://www.povertynorriches.com. Send questions and comments to ozeme@thechristianmoneycoach.com.

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