How an IUL policy works

IUL plans have a cash value side fund and a variable premium structure. The insurance company invests the premiums you put into the policy in the general account of the insurance company. The insurance company, in turn, invests the general account primarily via the use of options in the general stock market. A guaranteed credit rating, sometimes resembling a certificate of deposit, is given to the insurance owner. A part of stock market returns that are positive for equities is also awarded to the policyholder. So even if equities decline, the policyholder still receives the lowest credit rating.

Taxation of IUL policies

Life insurance plans known as IULs often get advantageous tax treatment from Congress. Taxes are not deducted from premium payments. But, as long as the policy is in effect, the cash value of the policy grows tax-free, and the policy owner can often access the cash value tax-free at any time. IUL policies have become common savings options for some people, especially for those who make too much money to qualify for retirement accounts like IRAs or 401ks or who have maxed out allowable contributions. These benefits include no income tax, capital gains tax, or 10 percent penalty on proceeds received prior to age 59-1/2.

Advantages
Indexed universal life insurance plans offer favorable tax status, no limitations on how cash value may be spent, and a tax-free cash death benefit in the event of the insured’s passing for the policy beneficiary. Also, depending on the state, the cash value of an IUL insurance often enjoys some creditor protection and does not count against the family when evaluating need-based financial aid for college. Furthermore, because the policy owner is ensured a minimum crediting rating, IUL policies do offer some capital safety. Yet, especially on low-balance cash values, policy premiums are usually greater than the specified rate.

Term Policies
The simplest type of life insurance is the term. It only pays out if a death occurs within the policy’s term, which is typically one to thirty years. Most term insurance doesn’t have any additional benefit clauses.
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Level term and declining term are the two main categories of term life insurance contracts.

The level word refers to the death benefit remaining constant during the course of the policy.

Reducing term refers to the death benefit decreasing throughout the duration of the policy’s term, often in one-year increments. Almost all (97%) of the term life insurance purchased in 2003 was level term.
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What are the types of term insurance policies?
Term insurance comes in two basic varieties – level term and decreasing term. These days, almost everyone buys level-term insurance. The terms “level” and “decreasing” refer to the death benefit amount during the term of the policy. A level-term policy pays the same benefit amount if death occurs at any point during the term.

Common types of level terms are:

Yearly (or annually) renewable term
5-year renewable term
10-year term
15-year term
20-year term
25-year term
30-year term
Term till a certain age (usually 65). The once-popular yearly renewable term is no longer a hot seller. Nowadays, a 20-year term is the most common length. Most businesses won’t provide applicants term insurance for a term that finishes when they turn 80.

When a policy is “renewable,” it indicates that it can be extended for another term or term until a certain age, regardless of whether the insured would be turned down for a new life insurance policy due to his or her health or other considerations.

Typically, the policy’s premium is determined by the insured person’s age and health at the time the policy first begins, and the premium stays the same (level) throughout the term. So, the premiums for the five-year renewable term might be set at a level rate for the first five years, then change to a new rate reflecting the insured’s new age, and so on. Some longer-term plans make the promise that the premium won’t rise over the term; other policies don’t make that promise, allowing the insurance provider to increase the cost of the policy during its term.

Convertible term policies exist. This implies that without additional proof of insurability, the policy’s owner has the option to convert it to a permanent kind of life insurance.
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“Return of Premium”

If you haven’t filed a claim against the policy by the time it expires, you generally won’t receive a refund of the money for most forms of term insurance, including home and car insurance. You obtained fair value for the protection that your premium purchased, which you already had but did not require. This result has left some term life insurance customers dissatisfied. Hence several insurers have developed term life with a “return of premium” provision. The insurance with this feature typically has higher premiums than plans without it, and you typically have to have the policy in force for the whole term of the policy in order to receive the return of premium benefit. For the return benefit, some plans just reimburse the basic premium; others reimburse both premiums.