Index Universal Life (IUL) is one oft-recommended product for financial planning. Some financial advisors suggest that term-life is a waste of money and instead people should invest in IUL plans. In this article, we will try to gather the collective wisdom of many such advisors.
Money invested in an IUL is not taxed till withdrawals are made. So any intrinsic growth keeps getting compounded tax-free.
Retirement plans such as IRA will charge a 10% penalty on any withdrawals before 59.5 years of age. With IUL, withdrawals upto to the cash value of the policy can be made at any time.
The money invested in IUL goes directly to hiers listed as beneficiaries. It side-steps probate, and is not subject to income or death taxes, thereby maximizing the amount that reaches your loved ones.
IUL policies are passively managed. They are tied to an equity index. The upside and downside is capped. This means, there is an upper limit on how much the policy can appreciate in an year, say 15%, even if the S&P 500 equity index goes over 20%. But if the equity index goes down, says -20%, your losses are capped at 0%. You do not profit that year, but you do not make a loss either.
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