What is the difference between universal life and indexed universal life?

The main difference between whole life insurance and indexed universal life (IUL) insurance is how the cash value operates. Whole life insurance cash value grows based on a fixed interest rate. In contrast, insurance companies tie IUL cash value to a stock market index's performance.

How does an indexed universal life policy work?

Indexed universal life (IUL) insurance is permanent, which means it lasts your entire life and builds cash value. An IUL policy allows for some cash value growth through an equity index account, unlike other universal policies that only grow cash value through non-equity earned rates.

What are the pros and cons of indexed universal life insurance?

Indexed universal life (IUL) insurance policies provide greater upside potential, flexibility, and tax-free gains. This type of life insurance offers permanent coverage as long as premiums are paid. Some of the drawbacks include caps on returns and no guarantees as to the premium amounts or market returns.

Can you lose money in an indexed universal life insurance?

It is unlikely you will lose money in an IUL because insurance agencies set a guarantee to your principal to protect it against losses in the market. However, there is often a cap on the maximum amount you can earn.

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