Indexed Universal Life Insurance Pros and Cons

When you think of a policy that can help you build wealth, think of indexed universal life insurance. Not just that but also, this type of insurance offers you a permanent kind of life insurance policy and services. It helps you to build up a cash value while you still maintain your insurance benefits.

Indexed Universal Life Insurance Pros and Cons

More so, indexed universal life insurance can have its disadvantages too. This mostly depends on what you want out of your life insurance coverage. As there are varieties of policies when it comes to life insurance, you have the power to make a choice and select what favors you.

So, if indexed universal life insurance sounds good to you, this article will provide all you need to know about your choice of life insurance.

What is indexed universal life insurance?

Indexed universal life insurance as we have explained, is typically a kind of life insurance policy that offers you the opportunity to build up money while you reserve tangible benefits for your loved ones.

This policy gives you a variety of options that stay beneficial to you as the insured and your loved ones. Ultimately, it is a permanent policy that gives the policyholder the opportunity to have your cash value build up and also provides benefits to your loved ones, should you pass.

Therefore, an indexed universal life insurance policy gives you the possibility of varieties of benefits for you first, and your loved ones later.

How does an indexed universal life insurance work?

Firstly, before we delve into how this policy works for the policyholders, you should know that you have the option of putting your cash value into a fixed account or equity-indexed account.

Without further ado, this is how the policy works. The minute you fill out your forms and purchase this insurance policy, your policy provider will make sure you understand everything about cash value. Also, they will provide you with the options of accounts for your cash value.

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When your account is set and your insurance is in place, you now begin to pay for your premiums. So, when you pay for your premium, your premium will be automatically shared into two sections. One goes into paying for your insurance that will cover your loved ones when you pass, while the other one goes into building your cash value.

Some insurance companies may allow their policyholders to own multiple indexes. This choice also stretches to the cash value. Indexed universal policyholders in most insurance companies get to decide how much cash value they may want to put in either account.

How your cash value builds up

If you purchased an indexed universal life coverage, you get the chance and benefit of building up a cash value for yourself. Your cash value has to keep growing so that you can benefit from it like taking out a loan.

Now, this cash value does not only rely on the premiums you pay for growth. Cash values also build up by earning interest from the way the stock market index performs. Most times, the S&P 500 may have a great influence on the interest rates of your cash value.

Additionally, the S&P 500 composite price index trails how the 500 largest companies in America work. Therefore, the increase or decrease in the rate of the cash value build-up is controlled b the index movement of this price index.

Advantages of indexed universal life insurance

Although everything comes with its advantages and disadvantages. However, it depends on you and what exactly you expect from the choices you make.

So, when it boils down to choosing a life insurance plan, the very wise step you must take is shopping around for quotes from different insurance companies. Again, you must be certain to get all the knowledge there is before you make your final decision.

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In light of this, so many individuals prefer to go for permanent life insurance coverage as opposed to the temporal. If you’ve made up your mind about the indexed universal life insurance coverage, you need to know the perks associated with it.

Cash value build-up

Not all life insurance policies allow for a cash value build-up. This policy gives you the chance to have a financial backup plan while you are still alive. If you keep paying your premiums regularly, over time, your cash value will become an advantage for you.

You could take out a loan from the account and pay it back later. However, in a case where you do not pay back your loan before your passing, it will be deducted from the benefits meant for your loved ones.

No benefits reduction

After accumulating your cash value, you can also go ahead and borrow against it. This step does not affect your cash value accumulation because it does not count as your earnings.

As against other savings account like the retirement savings account, the loans you take out on your cash value in your policy account does not affect your benefits.

Benefits for loved ones

Most life insurance policies provide benefits for loved ones in the event of the passing of the insured. Indexed universal life insurance policy offers this privilege too.

Your loved ones can use the benefits your coverage provides to settle bills and expenses like mortgage, funeral expenses, debts, or whatever they need to use the funds for.

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Additionally, the benefit funds are tax-free. This simply means that they will not be taxed for the funds they will receive from your insurance company.


When it comes to policies that offer flexibility in their coverage, indexed universal life coverage always comes through. Ultimately, you can decide for yourself how your investments through the coverage should go. More so, you can consider options like nursing homes and how much benefits you can offer your loved ones.

Disadvantages of Indexed universal life insurance

Indexed universal life coverage has its low points. It is also important to be familiar with the drawdowns that you could experience with this coverage.

High premiums

For what it’s worth, the stock market has a way of affecting this coverage plan. This categorically means that you must pay attention to the market before you purchase this plan. Purchasing this policy when the markets are down, opens you up to high premiums. High premiums will greatly affect your cash value negatively and can go ahead to affect the entire coverage plan especially if you could not meet up your premiums.


This coverage exposes you to risks unlike other kinds of life insurance policies. Here, your interest rates are not guaranteed. You must go with the flow as regarding what the stock markets throw out. You may be doing your normal premiums and the next thing is, the news of premium increment.

In conclusion, for individual reasons, the benefit may outweigh the disadvantages. It all depends on your plans and goals. If you want an easier life for your loved ones in the event of your passing, indexed universal coverage looks to be a good option. But, you have to be ready for the extras it might throw your way.

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