Indexed universal life insurance policies can serve as another investment option in your retirement portfolio and allow you to accumulate cash on a tax-deferred basis.
The funds you allocate for an indexed universal life policy (or IUL) allow you to direct the premium into one or more index allocation options. The insurance company tracks the index performance and uses a crediting method to calculate your indexed interest and the interest is credited to your cash value.
If the index declines, the crediting formula allows you to avoid the loss and earn zero interest in down years, he said. When the index rises, the insurance carrier credits those positive returns based on its formula since there is often a maximum crediting rate that can be earned.
The advantage of owning an indexed universal life policy is that in a permanent life insurance policy’s cash value, performance is tied to the performance of certain index unlike a variable universal life, said Andrew Carrillo, a certified financial planner in Miami and president of Barnett Capital Insurance, which specializes in life insurance and annuities.