In our previous article called ‘IF’, we discussed the concept of investing in variable funds and not losing any cash value accumulations. So exactly how does this concept work? First let’s discuss the basics of this policy. What is this policy called?
It fittingly has been called INDEXED UNIVERSAL LIFE. It offers the same flexibility as the other fixed universal life products. You can increase or decrease the amount invested each year. Additionally, you can change the death benefit amount. This flexibility fits well in a Business Succession plan because at times a business may need to devote other money to another opportunity. So how does this flexibility work?
First you must remember the term INDEXED in the name of the policy. This means that after the cost of insurance is withdrawn from your premiums, the life insurance company invests in one of the common investment indexes. You have the Dow Jones, Nasdaq and the S & P 500. Some offer two or three options so you can divide your investments between these indexes. However, the most common option is the S & P 500. So how does this option build cash to grow tax-deferred?
This policy is similar to Variable Life, previously described. Both participate in any gains in the stock market. However, in variable life gains as based on performance in various sub-accounts. As such, you are directly exposed to rise or fall in the stock market. However, while the new, Index Universal Life is exposed to gains in the stock market, they do not invest in the sub-accounts. As a result, they are not exposed to any loss as a result in any drops in the stock market. In the Index Universal Life, cash value accumulations are based on any gains in the market. These gains, if any, are credited to your cash value account. You will receive annual statements showing gains, if any, in your cash value accounts.
We will explain more and dig deeper in this fascinating concept. For now, keep in mind the flexibility of the plan and also the ability to participate in any gains in the stock market.