An Indexed Universal Life (IUL) policy is a type of permanent life insurance that provides both a death benefit and a cash value component, which can accumulate over time based on a stock market index, like the S&P 500. This policy offers flexibility in premium payments, death benefits, and growth potential, with important features such as:
- Tax-Free Death Benefit: If the insured passes away, the beneficiaries receive a death benefit, which is generally tax-free, offering financial security to the family.
- Chronic, Critical, and Terminal Illness Coverage: Many policies, such as those provided by AIG, offer additional benefits, like access to the death benefit in case of chronic, critical, or terminal illness. This can help cover medical expenses or long-term care without depleting other savings.
- Cash Value Growth: The cash value grows based on the performance of an index, with a cap and a floor. In your example, a cap of 11.75% means the policyholder can benefit from gains up to that limit, while the floor of 0% ensures that no money is lost due to market downturns.
- Long-Term Savings Example: A 21-year-old investing $300 per month until age 60 could accumulate a significant cash value in the policy. By the time they turn 60, the cash value could potentially provide approximately $5,000 per month in tax-free retirement income.
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For visuals, here’s a graph concept:
- Investment Growth Over Time: Show the accumulation of cash value with a 0% floor and an 11.75% cap over 39 years.
- Tax-Free Income: Illustrate how the policy transitions from growth to providing tax-free monthly payments starting at age 60.
- Protection Components: A graph showing how the policy covers various life stages, from a tax-free death benefit to medical coverage.
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