Equity Index Universal Life Insurance

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Reader’s Question:

What is Equity Universal life insurance index? How is it different to other types of universal life insurance like variable life policy?

Tina

Jackson MS

 

Just like any other type of permanent life insurance, Equity Universal insurance index provides life insurance protection as well as an investment aspect commonly referred as the cash value. Similar to a variable life insurance, a portion of your premium pays for an insurance protection to your family through a death benefit claim while the rest is invested to stock or bond accounts.

Equity universal life insurance index deviates from any other kind of universal life insurance in the sense that it adopts a different system for its cash value. The policy’s unique feature is its cash value is tied up to the performance of an index such as the Standard and Poor’s 500-stock index. This means that you have the chance to earn profit out of the index’s gain when it goes up but if it performs poorly or declines, you are usually guaranteed of a minimum return like 2 percent.

Attracting consumers to invest in this type of policy is somewhat beneficial to the economy especially that the stock market these days has been performing unfavorably. But the question is, whether you, as the potential buyer, should own this type of insurance or not. Albeit this policy may seem to be a good one because of the insurance and investment opportunity it has, there are still some people that have several issues towards it.

On average, these policies entail a variety of investment expenses that can eventually pull down your long-term return potential. As opposed to a variable life insurance, the costs that come along with an equity index universal life insurance are not explicitly broken out. Say for an instance, after giving in to the investment and policy’s expenses, do you still have enough premium left to give you the amount of insurance coverage you need? So when choosing an investment type of policy, consider the following: 1) Is it liquid and safe? 2.) Can you access the money when you need it? 3.) Is there any tendency that I will lose the principal? 4.) Is there an opportunity for a good rate of return 5.) Will it incur taxes? If structured properly, an EIUL can outperform other investments since it can grow during the accumulation phase and can be withdrawn without any tax consequence.