While choosing an insurance policy we also try to take one that also increases the cash value with time. For that there are two options known widely that are Indexed Universal Life (IUL) insurance and Variable Universal Life (VUL) insurance.
We will here see the comparison between IUL & VUL and what unique features do they offer.
Indexed Universal Life Insurance (IUL)
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Growth Component
IUL helps in the growth of cash value depending on the stock market index. Without directly investing into the stock market and thus saving himself from the stress of a down market the insurer gets the profit when the market goes up this results in the growth of cash value.
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Safe Initial Investment
With downside market protection there is no risk of losing the initial amount invested because the insurer has nothing to do with the stock failure, he gets the profit only when the market goes up.
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Tax-free Growth
There is no need to pay taxes on your profits or even for the loans that you take. Thus, making it a great option for earning a good amount without any deductions. As a result, you can get savings for your future without compromising your lifestyle.
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Flexible Premiums and Death Benefit
With IUL there is flexibility in paying premiums and death benefits. Insured can increase or decrease the amount as per their ongoing financial conditions providing a way to tackle the situation when you are low on budgets.
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Easier access of Cash Value
Variable Universal Life Insurance (VUL)
- Growth Component: The cash value in VUL is not limited to only the stock market but here you get a variety of options like investing in sub-accounts the same as mutual funds. You get to choose between options like stocks, bonds, or other investments.
- Investment Options: In VUL you can invest in your preferred profile keeping in mind your capacity to take risks and whatever investment you believe is going to give you the highest of returns.
- No Caps or Floors: VUL does not limit your cash value to a limit like IUL, you earn profits based on the index of your chosen investment and in case of losses too.
- Premiums and Loans: VULs also offer flexibility of premiums, and you can take a loan that you need to manage well otherwise it might lead to a decrease in your cash value.
Key Differences Between IUL and VUL
Risk and Return Profile:
- IUL: It limits the growth of cash value to a particular amount and protects you against losses even when the market suffers.
- VUL: There is no limit on profit earned and you are not protected from losses.
Investment Choices:
- IUL: You have only one investment choice, that is cash value growth potential linked with a stock market index.
- VUL: There are diverse options available for you, you can go with what fits you the most.
Growth Potential:
- IUL: There is a limit on returns, but you do not have the fear of losing as you are protected from a market failure.
- VUL: You can get higher returns but there is also a risk of incurring losses.
Suitability:
- IUL: It is suitable for those looking for growth in cash value and do not want to take risk.
- VUL: It is good for those who are ready to take up the risk and do not wish to limit their growth.
Conclusion:
While selecting an insurance policy, you first need to analyze your preferences like your goals, risk factor, whether you can take a risk or not, and if you wish to not limit your cash value growth. IULs are on a safer side because you are protected from any losses even in case of a down market and cannot take risk but if your aim is to maximize your cash value and you can take the risk with a plus point if you have knowledge about managing and monitoring sub-accounts then go for VUL. You can take advice from a consultant. Both IULs and VULs involve unique features making them fit for different individuals depending on what you are looking for.
FAQs:
Q. Should I choose VUL or IUL?
A: If you can take the risk then go for VUL otherwise IUL.
Q: Is IUL risky?
A: No, there is no risk in IUL.
Q: Can I withdraw my amount from VUL?
A: Yes, if you need you can withdraw partial amount.
Q: Am I allowed to take a loan from IUL?
A: Yes, you can take out a loan, but you need to manage it well.
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