For many, having a life insurance policy is essential. Life insurance protects your loved ones after your death and is something you should strongly consider if you have any dependents. Many life insurance policies are available to you, and finding the right fit can be challenging. While term life works for some, many prefer universal life insurance since it offers lifelong coverage. Indexed universal life insurance takes universal life insurance a step further in that it allows you to benefit from the stock market. Here are three things to know about taking out an indexed universal life insurance policy.
How It Works
Before you take out an indexed universal life insurance policy, you need to know what you are getting into. Like other universal life insurance policies, an indexed policy offers both a death benefit and a cash account. However, the cash account grows depending on the performance of a stock index. The insurance company selects the stock index, or indexes, and pays the cash account interest depending on the index's performance. Indexed universal life insurance offers a fantastic way to grow wealth while also leaving a death benefit for your loved ones.
There Are Interest Caps
If the market does well, you will likely see some significant gains when it comes to your cash account. However, interest caps for an indexed universal life insurance policy are in place. The cap is the maximum interest rate your account can earn, so you'll still only make the capped interest rate if the market is higher than your cap. In addition to a cap, there will also be a floor to help minimize large swings in interest payments.
It Is More Expensive
While there are many benefits to an indexed universal life insurance policy, it will be pricier than a standard whole or term life insurance policy. Indexed policies are fantastic options if you want to grow your wealth while leaving a benefit for your loved ones. However, indexed policies typically come with higher premiums and can be more challenging to manage than other types of life insurance policies. Before committing to an indexed universal life insurance policy, make sure it meets your needs and fits your budget.
Before taking out an indexed universal life insurance policy, there are a few things you need to know. First, knowing how indexed universal life insurance works is crucial before committing. Second, interest caps usually apply, and you'll want to consider the cap on your policy before you start paying premiums. Finally, while there are many benefits to indexed policies, they are usually more expensive than other types of life insurance policies. Contact an indexed universal life insurance provider near you to learn more.