What’s the difference between Whole Life, Universal Life, and Index Universal Life?First, let’s talk about the similarities?All three are forms of Permanent Insurance.Permanent Policies have two components:1.Life Insurance2.Cash ValueThe life insurance in a permanent policy does not have an expiration date during your lifetime. As long as you keep your policy in force, your beneficiaries are covered till the day you die. A portion of the premium you pay for your life policy is set aside to fund the investment component of your permanent insurance policy. The cash that grows will grow tax-deferred. You have multiple options with the cash accumulation your policy generates. You can borrow against. You can surrender the policy and retrieve your investment. Once the cash reaches a certain amount, you can even use it to pay future premiums.So what is the difference between these 3 permanent life policies?The difference is the way the cash value works. Each policy invests the cash slightly different than the other. Let’s Examine the Three Investment Strategies1.
1. Whole Life is the most conservative of the three. It works very similar to your bank’s savings account. The interest is fairly low, so growth will be slow, but it is safe and guaranteed.
2. Universal Life bases returns similar to current money market rates. While over time returns are consistent there could be variability because of market fluctuations. You also have flexibility with a universal life policy. Within ranges, you can move funds between the insurance portion and the investment portion. This makes this a unique investment tool because you can increase either the insurance or investment amount depending on your needs at the time.
3. Index Universal LifeAn index universal life product was created to stabilize returns over time. The cash returns are connected to a stock market index. Tying investments to an index provides several benefits to the policyholder. Allows policyholders to allocate funds to equity or fixed accountsInvests in S&P 500 or NASDAQ 100Creates investment stability while allowing more aggressive returnsEach product has unique benefits and strengths depending on your situation. We can help you evaluate if any of these products should be part of your investment portfolio or insurance needs. Contact us today.