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What Is Index Universal Life Insurance

Is It Right For You?

Above all, I am going to look at Index Universal Life Insurance (IUL) in multiple points of view. In fact, I am going to dismantle it in this article. Furthermore, my main focus is that YOU, the consumer can make an educated decision on whether not this product is right for you. So we will be going equally over the pros and cons of the IUL.  You’re best off being aware of these before deciding on a specific kind of life insurance policy. Again, it’s very important to realize these things because one day your family will be depending on it!! DO YOUR DUE DILIGENCE!!

how does universal life insurance work

How Index Universal Life Works is Similar to the majority of life insurance policies, premiums go directly to the insurance company. However, with IUL you are allowed to have you cash allocation to either an equity index account or a fixed account or fixed interest account. The cash value build-up can be volatile by investing in stocks, bonds, and other sorts of investments and indexes such as the Nasdaq 100 and S&P 500. Therefore, the rate of your cash value build up is dependent on how well your investments are doing. Furthermore, these policies offer tax-deferred cash accumulation while maintaining a death benefit.

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Let’s Start With The Cons!

Consequently, index universal life insurance policies are permanent life insurance policies. Or are they? In theory, they are. However, if you make the minimum payment you will find out almost when it’s too late, that this was not the product for you. I get calls every day from potential clients that have been paying into an IUL for decades!! Usually, the end result is their cash account is depleted, or the insurance company is demanding a higher payment to maintain the policy. In fact, this is usually when you are on a fixed income an can’t afford it. Guess what? The house wins!!


  • Smaller face amounts not good
  • You are capped out on the accumulation
  • On a down market, you are tied to an index
  • In this scenario, the agent didn’t explain the product to well, or clients that are young don’t really think too much about death, or maybe its a combination of both. It’s important to realize that the premiums will increase because there are breakpoint years. Again, this is what will happen if you just make the minimum payments. Another key point, you have to remember that a IUL is tied into stock indexes, so if the market has a bad year so will your policy. This is because no interest will be credited to the cash value. To emphasize, the goal with an IUL is to profit from the market movements upwards.

    If you are making the average salary and just starting out with your family, then 30yr term or 20yr term will be a better option. Just get the best-priced policy and invest the difference in an IRA or 401k plan. We will get more into this below.

    Also, you want to make sure you don't get confused between the non guarantees vs guarantees of the policy


    To recap, in my opinion, the major con is that these policies usually have increased premiums and the wrong times, the retirement years. It takes years to begin seeing a pay off from your cash growth. In fact, the first few years you will need to pay fees and commission. Furthermore, the insurance company has total control of your investments, even though investing in an index fund on your own may be more profitable.

    However, the major con is that these policies usually have very high premiums. It takes years to begin seeing a pay off from your cash growth. In fact, the first few years you will need to pay commission. Furthermore, the insurance company has total control of your investments, even though investing in an index fund on your own may be more profitable. For those looking for life insurance for seniors over 75, IUL may not be the best options.


    Index Universal life has cash value build-up, which means you can make a return on upward market movements. So when the market is rocking, so is your cash value! Also, when your cash value grows its tax-deferred. In fact, if the market is bullish and your cash values increases then it can cover your premium payments. So there is flexibility with your premiums.

    In general, and my favorite key point about IUL is you have no limitations on annual contributions. That’s right!! So who is this policy great for? Business owners looking for tax write-offs for deferred compensation!! In fact, maybe you had a nice score on that real estate sale or stock sale. You want to defer taxes, well and IUL can be a nice storage unit. Annual returns range from 4-5% and as high as 13-15%. That’s a lot better than the banks anemic .25%. These policies are geared for over funding!!

    A huge advantage of a universal index life insurance policy is the potential to accumulate a lot of cash value while receiving guaranteed protection from volatile markets.

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    benefits of indexed universal life insurance

  • Low Price compared to other permanent life insurance policies, (Beware!! Read Above)
  • Cash Value reaps the benefits of an upward market
  • Flexibility in premiums, sub-accounts, face amounts, all can be adjusted
  • Distributions are Easy and accessed any time without penalty
  • Unlimited Contributions

    To recap, these policies are usually quite flexible. You can customize your payments however you’d like. On top of this, most policies are backed by some guarantee. This guarantee ensures that you will be accumulating some sort of annual cash build up (i.e. a minimum of 2%), regardless of how well the index is doing.

    However, there are some things you should be aware of before getting an IUL policy, which we’ll go over below. Bottom line, I am not a fan of this product unless you have a game plan with your CPA or CFP. I have seen more times than not consumers get hurt by this product. here...

    Another key point, insurance companies make huge profits off these policies as well as the agent. In some cases, agents get renewals up to 10 years on these products.

    Therefore, being aware of the different types of life insurance policies will help you find the best option for you and your family. Call us, we will help you do your due diligence!


    In the first place, IUL’s are a very good vehicle for investments if you have a chunk of cash that you don’t want to sit in the bank making Peanuts. Especially if you compound the interest and return you make. These products are also very good for deferred compensation for employers looking for a tax break. So in these circumstances, I agree that using an IUL for these reasons will not put you in a risky situation. Again, you need to have an objective. So index universal life as an investment in this case I agree with.

    Although, if you’re looking at this as nothing more than a life insurance policy and a cheap premium payment, this is not the best choice. My advice is in agreement with Suzy Orman and Dave Ramsey, buy term and invest the difference. Again, if you do not over-fund or pay more into this policy, using an indexed universal life insurance for retirement will put you behind the eight balls!!

    index universal life insurance is it good for retirement

    Using an IUL policy for retirement on an individual basis is not ideal and certainly not my first choice. However, if funded properly it can have its advantages especially in a high interest rates environment. Moreover, if you are looking for more of a risky return then a mutual fund or investing in the stock market might be your speed. 

    Now if you are a business owner, then using a IUL for deferred compensation plan can have enormous advantages. If you are using a non qualified deferred compensation plan then you can contribute deferred compensation for key personnel to keep them put with writing off the contributions. Usually a key person will receive one million in life insurance as part of a compensation package. 

    index universal life insurance vs 401k

    Overall, if you are an employee that comes in everyday and punches a clock and plans on getting there 20+ years in and retiring, then all the retirement planning you need is a 401k plan. However, if you are a key employee that is an asset to the company then a juicy compensation plan will retain the talent. 

    You see, a NQDC is a way to receive tax free income after retiring so its a little more than insurance coverage. So as the employer contributes the income and taxes are deferred. Also the average participation rates is about 11.65%, a hell of a lot better than a bank! So over the years at it compounds when you retire you can just take loans against the cash value. Its like being your own bank, so zero interest loans are nice!. More on being your own bank on our Infinite Banking Article. 

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    top 10 index universal life companies

    After all, we have been pretty critical of the IUL product. We have good reason to. Many life agents have taken advantage of clients by selling them on the pros of the low cost and returns they may have. However, not educating on the cons. Again, these products are great for certain situations but it is not a one size fits all. Do your due diligence!!

    Here are our top 10 IUL Companies.

    1. Pacific Life
    2. American National-Best Living Benefits Built In with cash back features
    3. North American
    4. Lincoln Financial Group
    5. John Hancock
    6. AIG
    7. Principal
    8. Prudential
    9. Protective Life
    10. Mutual Of Omaha

    If you want to know about any of these carriers, we are National Independent Agents, call me on any of the phone numbers listed.

    • 855-380-3300 x1
    • Fax 904-212-3020


    If you don’t think universal index life insurance policies are right for you, that’s fine. There are plenty of other life insurance options out there to consider. For a less complicated policy, consider the popular term life insurance or whole life

    Term life insurance is the most straightforward and least expensive kind of life insurance available. These plans cover you for a designated amount of time, such as 10, 20, or 30 years. Later, you can choose to renew your term life insurance policy if you wish.

    ​​​Term life insurance policies are best for those on a budget, or for those that they want coverage for the duration of their mortgage, for until their children become adults, etc. Term life insurance will keep you covered for as long as you pay your monthly premiums.

    Of course, term life insurance does not offer cash value build up. In fact, your premiums may go up significantly if you choose to get a new policy later in life. Also, you can save over 50% by layering term life insurance policies.


    Deciding on the amount of life insurance to purchase is one of the most important decisions that you’ll need to make. Below, we’ll list some of the factors that you should consider before calculating how much life insurance you’ll need:

  • Debts/Mortgages — One of the main purposes of life insurance is to prevent your family from inheriting any of your debts after you pass away. Calculate how much you owe before deciding on the amount of life insurance.
  • Replace Income — Once you pass away, those that are financially dependent on you will no longer be receiving the benefits of your income. Replacing your salary is something that you may want to be covered by your life insurance policy.
  • Final Expenses — Funeral costs are usually around $10,000. This a large bill to leave your loved ones, which is why final expenses are often covered by life insurance policies.
  • For more great information for cash value life insurance and how they work, click here.

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    whole life vs indexed universal life insurance

    When you are thinking about permanent life insurance these two are the ones that come to mind. However, there are many differences between the two. 

    Should I purchase whole life insurance

    That is a great questions! Lets find out the characteristics of this type of permanent life insurance. These types of policies are more common as a final expense or burial policy. At other times its used as a long-term cash flow vehicle in the terms of a single pay, 7 year pay or a 20 year pay. 

    Here are some reasons to consider:

    • Depending on the company, you can earn dividends
    • You can barrow against cash value
    • Fixed premiums
    • Death benefit is guaranteed as long as you continue to pay your premiums. 

    Another reason whole life is used is as a infinite banking strategy. Here are some of the Cons of whole life:

    • Little Cash Value Early On
    • Rate of Return is small
    • Dividends Fluctuate

    The benefits of IUL Index Universal Life

    Is indexed universal life insurance a good investment? If you are using this policy as a over funding strategy then yes it does have fantastic benefits.  

    Here are some of the Pros of a IUL:

    • Opportunity to have a high rate of return
    • Can borrow money
    • Cash Value Growth
    • Guaranteed Death Benefit
    • Lower cost compared to Whole Life

    However, if you are buying this as strictly a death benefit, then you will be sorry down the line as the cost of insuring rises. As you age the cost of insurance rises so if you are still making that same small payment then they need to make up the difference somewhere. That usually taking a loan against the cash value or from the face amount. 

    Here are some of the Cons of IUL:

    • Premiums can increase
    • No Guarantee of investment performance
    • Complicated to understand
    • Management fee's

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    We are not in the business of selling. We are actually against that. We like to educate our clients and provide them with the best options. We based those options on the 

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    Hiring an expert can actually save you a lot of money in the long run. An independent insurance agent can connect you with the top life insurance carriers. They’ll know how to find you the cheapest policies, and they’ll answer your questions thoroughly and honestly.

    If you have any questions, please feel free to contact us at PinnacleQuote (855)380-3300.

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