Throughout the client’s life and the period that they hold the indexed universal life insurance, they won’t simply be paying a premium, the funds they regularly pay will be indexed in the market. In other words, your life insurance policy is more than a safety net, it’s an actual investment that has the ability to earn cash value in interest based on the annual return of an external index. Thus, as your index grows so does the cash value of your life insurance policy.
Each index will be locked in for a year, and at the end of that year, the value will be credited to the policy and indexed again. If the index were to drop in value, you would not lose your money as there’s no portion of your hard cash contributions to your life insurance policy that’s actually invested in the index. Upon the date of the policy anniversary, the cash value is locked in, thus fluctuations in the market and the general volatility of the market will have no effect on your life insurance policy. The average IUL policy can expect to see around a 5-8 percent return, depending on how the markets perform.
While an IUL isn’t created to be able to create a constant stream of support in your retirement years like a 401(k) or Social Security, it can supplement those incomes, which is one of the most attractive portions of the indexed income that this type of life insurance policy earns over time. After all, once you retire, you’ll no longer pay for the policy. Rather, the policy will start to pay them in tax-free income for the rest of your life.