Indexed universal life insurance (IUL) is a form of permanent life insurance that provides a death benefit to your beneficiaries and a cash value component that can grow over time. What distinguishes IUL from other life insurance policies is its ability to accumulate cash value based on the performance of an underlying index, such as the S&P 500. This means that the policyholder can earn market-linked returns while being protected against loss.

The cash value of an IUL policy has the potential to grow in two ways: through an interest-crediting strategy and the performance of an underlying index. The insurance company determines the interest crediting strategy, which may include a fixed interest rate or a combination of a fixed rate and a percentage tied to the performance of the index. This growth is generally subject to a cap or participation rate, which limits the maximum return you can earn.

Indexed universal life insurance offers several benefits. First, it provides a death benefit that can financially protect your loved ones. In addition, the cash value component of an IUL policy has the potential to grow over time, allowing you to accumulate funds that you can use during your lifetime for a variety of purposes, such as supplementing retirement income, funding education or covering emergencies. IUL policies also offer flexibility in premium payments, allowing you to adjust your contributions according to your financial situation.

Like any financial product, IUL policies carry certain risks. One risk is the possibility of the underlying index performing poorly, which could limit cash value growth. It is crucial to understand the policy cap, participation rate and any other factors that may affect interest crediting. In addition, IUL policies generally have surrender charges and early withdrawal penalties, so it is essential to consider your long-term financial goals and liquidity needs before purchasing a policy.

Indexed universal life insurance policies often offer flexibility to adjust certain aspects of the policy. You may have the ability to increase or decrease your death benefit, change premium payment amounts, or adjust the cash value allocation among available interest-crediting strategies. However, modifying your policy may be subject to certain conditions, such as age limitations or possible administrative fees. It is important to consult with your insurance provider or agent to understand the specific options and requirements associated with modifying your IUL policy.