Top 4 Reasons IULs are better than Whole Life Policies.

 


If you are starting to think about life insurance and trying to learn more about the different types of life insurance policies out there, you will have undoubtedly come across the term “Whole Life”, and you might have come across the term “Universal Life”. You have probably read up a little on both and might wonder which one is better for you.


Well, I am going to elaborate why I think Universal Life, or Indexed Universal Life (IUL) to be more specific is the better choice for most. With that being stated, an IUL may not always be the best option for everyone. Careful consideration must be taken of your specific situation with your financial professional. But, I will take a “bell curve” perspective with this article and give you my top 4 reasons why I prefer an IUL.


        1. IUL’s are less expensive than Whole Life Policies

Because IULs and Whole Life policies are structured differently (will explain later in article), the IUL will become less expensive over time whereas the whole life policy’s premiums will remain level for the entire duration of the policy.


Keep in mind that they are both permanent policies. Though, with the IUL you can reach a point where you no longer have to pay premiums, and you can let the policy ride and grow on it’s own….which leads me into the number 2 reason…


        2. Premiums can be offset by the cash value of an IUL

Let’s give a quick summary on how each of these policies work.

A whole life policy has 2 components relevant to this discussion, the death benefit and the cash value. When you pay your premium, a portion goes to paying for the actual insurance, and a smaller portion goes to a cash value account. Your insurance premium will be the same and stay constant until you die. If you stop paying your premium, your whole life policy will lapse, and you will no longer be covered. If this happens, you will have cash value that you will be able to take after any surrender fees are charged by the insurance company. Your insurance premium for a whole life policy will remain the same price for the duration of the policy.


An IUL policy works a bit different. You still have the 2 components of the actual life insurance and cash value in an IUL. However the difference is that the cash value can offset the premium. Meaning that when your cash value grows, it can start to pay your premium if you want it to. Also, as the cash value grows, the death benefit decreases. So if you bought a $500K death benefit IUL. Your first premium payments are for $500k of insurance plus your cash value. Say your cash value grows to $200k. You will now pay for $300k of insurance plus any cash value.


Because of this feature, an IUL get’s less expensive as time passes….as compared to a whole life in which premiums remain level until you die. Both are permanent insurance policies, but the IUL will give you more bang for your buck.


        3. IUL cash value growth is linked to a market index

I won’t spend much time on number 3 because I explain further in the 4th reason.

But with an IUL, the growth of your cash value is linked to a market index. It is only linked, you are not invested directly in the market and subject to the market volatility.


        4. Indexing

In an IUL, your cash value growth can be linked to a market index and also has a 0% floor when the market goes down. What does that mean? So say your cash value is linked to the S&P 500 index. In a bull market, that index would be up and gaining. With your cash value linked to that index, it will grow when the S&P grows. However, when the S&P declines and is losing value, your cash value is protected by the 0% floor. Meaning that your cash value will neither grow or gain in a down market/recession. As we like to say, this makes zero, your hero.


It is worth mentioning that with a 0% floor of an IUL, there is also a ceiling on growth. This will vary between insurance companies. The policies we write range from 8% – 16% depending on how they are structured.


Now, let’s compare this to a whole life policy where cash value is usually guaranteed to grow at x percentage per year. This may sound good, however that percentage is much lower than the growth potential of an IUL. This is why my


There it is! I hope you enjoyed and found value in the article. If you would like to schedule a free consultation with me, please find my Social Media pages below to contact.


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