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Choosing the right life insurance policy is essential, so it’s important to learn about all your options and consider your unique situation. We offer Aflac® Life Solutions—Term Life or Whole Life plans at affordable prices to keep your coverage simple and easy. We do not offer indexed universal life insurance, but some individuals may find it better suited for their needs. Read on to learn more about what indexed universal life insurance is and the pros and cons so you can decide whether this policy is right for you.
Indexed universal life insurance is a type of permanent plan with a savings component. Unlike some traditional life insurance plans, indexed universal life insurance allows the policyholder more input on how the cash value grows. With indexed universal life insurance, you are able to place part of your savings in a standard, tax-deferred, cash-value account and segment another portion into an account that grows based on a chosen index.1
Indexed universal life insurance works similarly to a standard universal plan with a death benefit, but it allows the policyholder to grow their cash value based on a certain equity index.2 When the policyholder passes, the beneficiary only receives the death benefit, and the cash value goes back to the insurance company.3
When you pay a premium for indexed universal life insurance, part of the funds goes to the basic functioning of the plan, and the other part goes into the saving account and earns interest based on an equity index. None of this money is physically invested in the stock market, but it is used as a gauge for interest payments.4
Essentially, the chosen index’s performance determines how much interest will be added to the total cash value in your indexed universal life insurance plan. This is typically reevaluated at the start of each month, but it varies depending on the company you are working with.5
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Before committing to indexed universal life insurance, here are some pros and cons to consider.
If you choose a good indexed universal life insurance plan, you may see your cash value grow in value. This is helpful because you may be able to access this money before the plan expires. However, some companies may require you to forfeit the plan to access this cash value. If you can access it early on, it may be beneficial to factor it into your life insurance retirement planning.
Since indexed universal life insurance requires a certain level of risk, insurance companies tend to keep premiums low6. This type of plan also offers flexibility around the death benefit. It is still guaranteed, and you can adjust the face amount and riders over time7. Lastly, indexed universal life insurance allows unlimited annual contributions to broaden your earning potential.8
While you can contribute as much money as you’d like to the savings portion of your indexed universal life insurance plan, there is a cap on earnings9. These rates vary depending on the insurance company you choose.
Also, in this type of plan, you’ll only see substantial return on cash value if you are willing to commit to a large face value. If you choose a small face value, you may not see any of the pros of indexed universal life insurance come to fruition10.
Lastly, if the chosen index doesn’t perform well, your cash value’s growth will be impacted. Typically, the insurance company has a vested interest in performing better than the index11. However, there is usually a guaranteed minimum interest rate, so your plan’s growth won’t fall below a certain percentage12. These are all factors to be considered when choosing the best type of life insurance for you.
The cost of indexed universal life insurance can vary based on several factors, such as the policy type, insurer, your age, and health. However, since this type of policy is more complex and has an investment component, it can often come with higher premiums than other policies like whole life or term life insurance.
If you don’t think indexed universal life insurance is right for you, here are some alternatives to consider:
Term life insurance is a temporary policy that typically offers coverage for 10 to 30 years. Aflac offers term life policies with customizable coverage and reasonable premiums.
Whole life insurance is a permanent policy that can offer coverage for your entire life. Typically more straightforward than indexed universal life insurance, this policy comes with fixed premiums and a cash value component that grows tax-deferred at a fixed rate.
Final expense insurance is a small permanent life policy that can help your loved ones cover end-of-life expenses, such as funeral and burial costs. This type of policy comes with a lower death benefit and typically doesn’t require a medical exam.
When deciding whether indexed universal life insurance is right for you, it’s important to consider all your options. Whole life insurance may be a better choice if you are looking for more stability and consistency. On the other hand, term life insurance may be a better fit if you only need coverage for a certain period of time.
If you decide to go with indexed universal life insurance, we recommend looking into the plans and reviews at the companies you are considering.
Indexed universal life insurance is a type of policy that offers more control and flexibility, along with higher cash value growth potential. While we do not offer indexed universal life insurance, we can provide you with more information about whole and term life insurance policies. We recommend exploring all your options and chatting with an Aflac agent to discover the best fit for you and your family.
1-2, 4-12 Investopedia. Indexed Universal Life (IUL) Insurance Definition. Updated December 15, 2023. https://www.investopedia.com/articles/insurance/09/indexed-universal-life-insurance.asp. Accessed February 15, 2024.
3 Investopedia. Universal Life (UL) Insurance Definition. Updated February 21, 2023. https://www.investopedia.com/terms/u/universallife.asp. Accessed February 15, 2024.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
This is a brief product overview only. Coverage may not be available in all states. Benefits/premium rates may vary based on plan selected. Optional riders may be available at an additional cost. Plans and riders may also contain a waiting period. Refer to the exact plans and riders for benefit details, definitions, limitations and exclusions. For availability and costs, please contact your local Aflac agent/producer.
Life
(A65000 Series) - In Virginia, Policies ICC0965JTO & ICC0965JWO. B61000 Series) - In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO, B61JTO. (A68000 Series) - In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. Term and Whole Life (B60000 Series) - In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life (Q60000 Series) - In Arkansas, Delaware & Oregon, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In Texas, Policy Q60100MTX. Group Term Life (Q60000 Series) - In Delaware, Policies Q60200M. In Arkansas, Idaho, Oklahoma, Oregon & Texas, Policies ICC18Q60200M, ICC18Q60300C, ICC18Q60400C.
Coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
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