Navigating the world of permanent life insurance can be complex, yet understanding the nuances between different policies is crucial for making informed decisions tailored to your personal and financial goals. In this comprehensive exploration, we delve into the intricacies of Indexed Universal Life (IUL) and Variable Universal Life (VUL) insurance policiesโtwo prominent members of the Universal Life Insurance family. Our objective is to demystify these options, shedding light on their similarities and differences, to empower you in selecting the insurance plan that best aligns with your aspirations and risk tolerance.
IUL vs VUL
Indexed Universal Life (IUL) and Variable Universal Life (VUL) are part of the Universal Life Insurance family of products. Let’s start our discussion by first discussing universal life policies.
Universal Life Insurance Policy
Universal life insurance, such as indexed universal life (IUL) and variable universal life (VUL), is a form of permanent life insurance, also known as cash value life insurance. These universal life insurance chassis are designed to provide a lump sum death benefit for your beneficiaries, and also build up cash value over time. Because they are classified as universal life insurance, both types of policies offer flexibility in regard to premium amounts and coverage, and also feature other living benefits that typically accompany cash value life insurance.
The benefits of universal life insurance include:
- Tax-deferred growth of the funds in the policyโs cash value account.
- Ability to use funds from the cash value account to pay premiums.
- Option to take tax-free partial withdrawals from the cash account of your policy (as long as they donโt exceed the amount you have contributed to the policy).
- Option to take tax-free loans from the policy while still earning interest or growth on the remaining cash value
Similarities Between Indexed Universal Life and Variable Universal Life
- Cash value grows tax deferred.
- Option to allocate cash into a fixed account or indexed account
- Tax Free Death Benefit to Beneficiary
- Growing or Fixed Death Benefit Option
- Cash value can be accessed tax-free via loans
- Flexible premium payments
- Flexible death benefit that can be lowered to lower costs
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VUL vs IUL Video
For more, check out our video that covers the differences and similarities between VUL vs IUL policies.
Whole Life Insurance
Finally, a brief word on VUL vs IUL vs Whole life insurance. The primary benefit of whole life versus universal life is that whole life offers guarantees, including guaranteed fixed premiums, guaranteed cash value growth, and guaranteed death benefit.
The primary benefit of whole life is that the premium is fixed for the life of the policy. While guaranteed universal life can offer similar premium guarantees, IUL and VUL policies do not provide the same fixed premium guarantee as whole life insurance. Consequently, anyone looking for a guaranteed fixed premium for the life of the policy should consider whole life as a viable option.
Conclusion
In conclusion, your choice between Indexed Universal Life (IUL) and Variable Universal Life (VUL) insurance should reflect your personal financial goals, your comfort with risk, and your interest in managing the investment aspect of your policy. If you prefer a safeguarded approach with protection against market downturns and predefined returns, IUL might suit you by offering a balance between growth potential and financial security. On the other hand, if you’re more inclined to embrace higher risk for the chance of greater returns, and you’re keen on having a direct hand in investment decisions, VUL could be the right fit, allowing you more control over your policy’s cash value investments despite the inherent market volatility.
There is no one size fits all life insurance company or policy. Each individual’s goals, objectives and needs must be considered to know what the best route to take will be. At I&E, we analyze the total picture of each individual to help find the best path to financial freedom and independence along your journey. Give us a call today for a complimentary strategy session to see just what we can do for you.
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8 comments
Eric
I like to learn about the iul
Thanks
Eric
919.946.1515
Steven Gibbs
Hello Eric, we forwarded your request to our IUL expert Jason Herring and you can also reach out to him to request a call at jason@insuranceandestates.com.
Best, Steve Gibbs for I&E
Steven Gibbs is a licensed insurance agent, and the following agent
license numbers of Steven Gibbs are provided as required by state law:
Resident License; AZ agent #17508301,
Non-resident Licenses: TX agent #2273189, CA agent #0K10610,
LA agent #769583, MA agent #2049963, MN agent #40563357,
UT agent #655544.
Lloyd
Iโm 39 and I have a 15 year old son I want to purchase him some insurance that he can use for the future when Iโm not around what kind of policy should I be looking into?
SJG
Hello Lloyd, there are various options to consider whcn talking about taking care of kids. A great next step would be connect with our expert Jason Herring who is very experienced with all types of policies. You can request a call by emailing him at jason@insuranceandestates.com.
Best, Steve Gibbs
Resident License; AZ agent #17508301,
Non-resident Licenses: TX agent #2273189, CA agent #0K10610,
LA agent #769583, MA agent #2049963, MN agent #40563357,
UT agent #655544.
Henry Rosas
I have come across good information about life insurance but I mostly see answers regarding older people 40+. I’m 23 y/o, in good health, and thinking of putting down 6k per year, and I’m still not sure which type of UL I should take. I’m inclining more toward VUL since I’m younger and I can take the ups and downs of the market. what do you recommend?
SJG
Hi Henry, the best option for you to get a clear example of how a policy can work for you is to email our IUL VUL expert Jason Herring at request a call at jason@insuranceandestates.com.
Best, I&E Pro Team
Ralph Weber
I have a client in her 50’s. She is very conservative in her investments, and does not have high risk tolerance. She likes the idea of UL building cash value then taking out income in 15 years through policy loans. She was told that VUL was the best policy and that it would guarantee $70,000 of annual income. I prefer IUL, but even then, I never guarantee income. Personally I think VUL is the wrong product for someone in their 50’s who is risk averse. What are your thoughts?
Insurance&Estates
Hello Ralph, I agree about the VUL but actually prefer and generally recommend traditional whole life with paid up additions rather than the IUL as the former often outperforms the latter. If you’d like to learn more, connect with Barry at barry@insuranceandestates.com.
Best, Steve Gibbs, for I&E