How Cash Value Life Insurance Policies Work
Policies today may not serve your needs tomorrow
FLEXIBLE LIFE INSURANCE POLICIES
Index Universal Life (IUL) and Universal Life (UL) policies are flexible premium policies. You can pay just the minimum to cover the insurance cost or a higher amount if it doesn’t exceed IRS guidelines. If you overpay, the excess earns interest, which is credited to your policy at the end of the year.
HOW THEY WORK
When you pay your premiums, any amount over that year’s insurance cost goes into your policy’s cash value. Both IUL and UL policies can earn interest on this cash value.
POTENTIAL RISKS
If you only pay the minimum premium or use up your cash value, it could run out, causing your policy to lapse. You’d need to add more cash to keep the policy active.
BENEFITS OF PAYING MORE EARLY ON
If you pay more in the early years, your policy might cost you less and provide an income. However, there are IRS limits on how much you can contribute.
REGULAR REVIEWS IMPROVE YOUR SUCCESS
Reviewing your policy’s annual statements is crucial to ensure it’s performing as you expect.
HOW PERMANENT INSURANCE DOES NOT ALWAYS MEAN PERMANENT
There’s a difference between a policy’s guaranteed and projected performance. The guaranteed rate is the minimum return with maximum fees, representing a worst-case scenario. Projected performance, usually capped at 10% to 12% annually, assumes you keep up with your scheduled premiums.
MATURITY DATE MEANS
UL and IUL policies have a maturity date, usually between ages 85 to 121. When this date arrives, the policy ends, and you receive a payment—typically the death benefit or the policy’s cash value. If you live past the maturity date, you might only receive the cash value, and coverage will end. Choosing a policy with the latest possible maturity date is best to extend your coverage.
How Index Annuities Work
Annuities can provide a steady stream of income for life.
They can even double your income if you need Long-Term-Care.
Index annuities are designed to provide returns based on the performance of a stock market index, like the S&P 500. Here’s a simple breakdown:
PREMIUM PAYMENTS
You make an initial premium payment and, in some cases, additional payments over time.
INTEREST CREDITING
Instead of paying a fixed interest rate, the annuity’s return is linked to the performance of a chosen index, like the S&P. You may receive interest credits based on the index’s performance.
CAPS AND FLOORS
Most index annuities have a cap, which limits the maximum return you can earn, and a floor, which guarantees that you won’t lose money (often 0% or 1%). This means you won’t lose money if the index performs poorly, but your gains are capped if the index performs well.
PARTICIPTATION RATE
Determines how much of the index’s gain you’ll receive. For example, if the index gains 10% and your participation rate is 70%, you’ll earn 7% interest on your annuity.
AVOID BAD PERFORMANCE
UNDERSTAND THE TERMS
Carefully review the cap rates, participation rates, and any fees associated with the annuity to ensure you understand how these factors will impact your returns.
CHOOSE THE RIGHT INDEX
Select an index that aligns with your investment goals and risk tolerance. Different indices have different performance characteristics.
REVIEW REGULARLY
Periodically review your annuity’s performance and terms. Make sure it meets your financial needs, and consider switching if better options become available.
UNDERSTAND YOUR EARLY WITHDRAWL FEES
If you withdraw funds early, be mindful of surrender charges and other fees that can impact your returns. Many policies will allow you a 10% PENALTY FREE withdrawal.
Annuities can provide a steady stream of income for life.
Newer policies will double income if Long-Term-Care is needed.
Still have more questions? Contact us today for a no-cost review!
