Indexed Universal Life vs. Whole Life Insurance (2024)

FAQs

Indexed Universal Life vs. Whole Life Insurance? ›

Whole life policies guarantee benefits with fixed premiums and known minimum growth. Indexed universal life (IUL) policies have flexible payments with cash accumulation pegged to the performance of an equity index.

Whole life insurance provides the stability of a fixed premium, and it's generally more affordable than indexed universal life insurance.

This type of life insurance offers permanent coverage as long as premiums are paid. Some of the drawbacks include possible limits on annual returns and no guarantees as to the premium amounts or future market returns. An IUL policy may be canceled if you stop paying premiums.

That will primarily depend on your risk tolerance and long-term financial strategy. But for the vast majority of people, an indexed universal life insurance policy is the better choice. The fees and higher risk of VUL policies don't make sense for how volatile the stock market is becoming.

A more complex product than term life insurance. Higher premiums than term life insurance. Could be costly if coverage lapses early.

Cons of Whole Life Insurance

Whole life is more expensive than term life, and you will receive a lower death benefit than you could get with the same amount of money with a term policy.

One of the most notable risks of Whole Life Insurance is its cost. The premiums associated with whole-life policies tend to be significantly higher compared to those of Term Life Insurance. The reason behind this lies in the policy's structure, which combines a death benefit with savings or cash value accumulation.

The main reason why IUL is considered a bad investment is because the S&P 500's total returns have undeniably outperformed Indexed Universal Life over any multi-decade timeframe. To make IUL vs. the S&P 500 look superior, life insurance agents have to isolate and cherry-pick the worst decades in stock market history.

For high-net-worth individuals, a universal life insurance policy is a popular choice. A cash lump sum payout from a life insurance policy can provide a family with a financial lifeline if the breadwinner passes away. The cash can protect a family's lifestyle.

Some of the drawbacks include caps on returns and no guarantees as to the premium amounts or market returns. An IUL insurance policy may be canceled if you stop paying premiums. IUL policies are generally best for those with large up-front investments who want options for a tax-free retirement.

Who should buy an IUL? ›

‍Who should buy IUL insurance? It's ideal for wealthy clients planning their estate or seeking retirement income. It also suits cautious investors who want stock market growth without risk. Additionally, people who want to invest and have easy access to their money can benefit.

Plus, since this is an investment, it's subject to the same risk all investments share—you could lose money. With an IUL, your cash value could shrink or disappear completely if the IUL doesn't have a guaranteed minimum rate of return.

You can borrow against the cash value of your IUL account and use that money to buy real estate. This method allows you to avoid traditional financing, which can come with high interest rates and strict eligibility requirements.

Life insurance doesn't typically pay out in these circ*mstances: Murder: If your beneficiaries murder you or are closely tied to your murder, they won't receive the death benefit, per the slayer rule. Suicide: A payout won't apply if you commit suicide within the first two years of purchasing your policy.

Term life is more affordable but lasts only for a set period of time. On the other hand, whole life insurance tends to have higher premiums but never expires. Knowing the differences between term and whole life insurance will help you choose a policy that works best for you and your lifestyle.

52% of Americans have a life insurance policy. 30% of Americans say they need life insurance but don't have it yet. More than 100 million Americans are uninsured or underinsured when it comes to life insurance.

An IUL policy is a good choice if you're looking for the potential for cash value growth while also seeking protection if the stock market falls. Returns are capped on both the high side and downside, which offers a safe haven but also limits the opportunity for outsized growth potential.

Whole life insurance is typically worth the cost for people between the ages of 25 and 50, even if you don't yet have a lot of people depending on your income or services.

IUL offers a death benefit and cash value tied to market indices, providing flexibility and growth, but it also comes with caps, fees and risks. Whether it's right for you depends on your financial goals and risk tolerance.

Just keep in mind that whole life insurance is quite expensive and often takes over a decade to earn reasonable investment returns. Therefore, it's typically only a good consideration if you're relatively young, have a high income and want to pass on money to your family.