IUL policies offer dual benefits that include death benefit and a potential for growth in the cash value by linking it to the stock market index. In this blog we will see the cost structure of indexed universal life insurance policies for helping you choose the right policy.
Here are some key benefits of the cost structure of Indexed Universal Life Insurance policy:
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Premiums in Indexed Universal Life Insurance: The Foundation
We all know that if you will take an insurance policy then you have to pay premiums at the same time. IUL policies offer flexibility in premiums where the policyholder can adjust them as per their wish.
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Cost of Insurance (COI): The Core Charge
One of the main components of IUL policy is The Cost of Insurance (COI). It includes the cost of death benefit and gets subtracted every month from the cash value of your policy. The cost of premium will increase with the age of the insured person.
The factors included while calculating the COI are insured’s health, age, and the face value of policy (death benefit). For a better understanding of your policy, you need to have a proper knowledge about how the COI is going to change with time.
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Policy Fees: Administrative and Maintenance Costs
Fees in IUL policies include the administrative and maintenance cost. These include:
- Monthly Administration Fees: It is a fixed fee that includes the cost of administering a policy like the processing of premium payments and maintenance of records.
- Percentage of Premium Charge: Some of the IUL policies deduct some percent of every premium amount to cover the sales and distribution expenses. This charge is a bit high in the early years of policy.
- Account Maintenance Fees: These are related to managing cash value accounts when linked to market indexes. Charges may be involved for reallocating the investment or accessing index options. Overall, these fees may reduce or nullify the cash value growth. Therefore, it is necessary to understand them and to have an idea about their impact on policy.
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Surrender Charges: The Penalty for Early Withdrawal
When a policyholder withdraws his funds or cancels the policy before the completion of his policy, usually 10-15 years, he is bound to pay the surrender charges. These charges help the company to recover the initial costs, and the commissions paid to the agent. However, this charge gets reduced with time and later gets eliminated. If you are someone who may want the timely access to your cash value, then you need to consider this keenly.
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Loan Interest: The Cost of Borrowing
Some IUL policies come with the benefit of letting the policyholder borrow against their cash value. It is beneficial due to its tax-free factor, but it also includes the interest charges. The rate of Interest can be fixed or variable depending upon the insurance company. An unpaid loan or an accrued interest can reduce the death benefit.
Conclusion:
Having proper knowledge of IUL policies is necessary if you are planning to take it. The costs like COI, surrender charges, indexing costs, premiums and loan interest can have a significant impact on your policy’s overall growth. You need to carefully assess your needs so that you find the best IUL policy that will fit your preferences.
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