EQUITY INDEXED UNIVERSAL LIFE
Equity Indexed Universal Life policies are tied directly to the performance of an index, such as the S&P 500. Just like the other types of permanent life insurance, a portion of your premium goes towards paying the expenses and the actual cost of insuring your life. The remaining premium is then placed into a cash value account, which grows tax-deferred and may be borrowed income tax free.
The crediting rate on the cash value is typically capped at a maximum. In addition, you are protected from any downturns in the market with a minimal guaranteed interest rate. The cap and floor are different for each company. As an example, you may have a cap of 13% and a floor of 0%. In this instance, if the S&P 500 had an annual return of 15%, you would be credited 13%. If it returned 8%, you would be credited 8%. If the market had a -10% return, you would receive 0%. The cash value growth each year is locked in and cannot be lost in a negative return of the index.
An EIUL policy may be used as a funding vehicle for retirement planning. With its favorable tax advantages, it may be beneficial to overfund the policy in order to receive tax-deferred growth on the cash value account. When it is time to retire, you may withdraw money from the cash value account completely income tax free. Additional information on life insurance as a retirement asset can be found here.
Equity Indexed Universal Life policies are tied directly to the performance of an index, such as the S&P 500. Just like the other types of permanent life insurance, a portion of your premium goes towards paying the expenses and the actual cost of insuring your life. The remaining premium is then placed into a cash value account, which grows tax-deferred and may be borrowed income tax free.
The crediting rate on the cash value is typically capped at a maximum. In addition, you are protected from any downturns in the market with a minimal guaranteed interest rate. The cap and floor are different for each company. As an example, you may have a cap of 13% and a floor of 0%. In this instance, if the S&P 500 had an annual return of 15%, you would be credited 13%. If it returned 8%, you would be credited 8%. If the market had a -10% return, you would receive 0%. The cash value growth each year is locked in and cannot be lost in a negative return of the index.
An EIUL policy may be used as a funding vehicle for retirement planning. With its favorable tax advantages, it may be beneficial to overfund the policy in order to receive tax-deferred growth on the cash value account. When it is time to retire, you may withdraw money from the cash value account completely income tax free. Additional information on life insurance as a retirement asset can be found here.
Why should I choose an Equity Indexed Universal Life policy?
Equity Indexed Universal Life policies are often used to fund retirement income while protecting the principal investment. It offers high returns that are not typical of Whole Life policies. The trade-off is the potential for a 0% return if the investment index yields a negative return. Depending on the company, the minimum interest rate may be anywhere from 0-3%. EIUL policies are a great option if you are looking for a high return without any negative impacts.
