Features Of Equity Indexed Universal Life Insurance Policies

Many people understand that equity indexed universal life insurance is high priced, with many fees and other costs, but these same people all agree that it is needed and preferred in some cases. Because a traditional universal policy has the flexibility many people need or want, many are seeing these benefits as the outweighing factor when selecting the equity indexed policy.

Equity indexed policies provide two benefits for the holder: protection for your family against loss of income due to death, and an investment vehicle. The first is similar to term life insurance. The investment side is usually tied to a stock index, such as the S&P 500.

Since the life insurance is tied to the market, you benefit when the market goes up. The value of the cash part of policies also rise when the financial index that the policy is tied to rises and does well. Another benefit usually includes the rider stating that if the index your policy is tied to falls drastically, your policy’s value and crediting rate cannot fall below zero in any case. In the current times of recession and the financial market’s constant up and downs, this is good news.

There are different choices when considering the equity index universal life insurance policy. Some of these include writing a Survivor life term into it; flexible premiums paid either monthly, quarterly, or yearly as opposed to single premium policies, among others.

The cash value of a policy varies greatly as well. There are certain factors taken into consideration when you have this kind of policy as compared to others. For example, caps may vary depending on the amount of the policy’s payout and indexed market growth or loss. Another factor is the value of asset fees, which will be deducted automatically from the tied in index’s increased amount.

Then there is the percentage rate at which the index increases that acts as another cap on the amount of the cash value. For example, if the index increases by about 50 percent over the course of a single year, the growth of the cash amount will only be a percentage of the index’s growth percentage. The percentage that your cash value grows as compared with the growth of the index is the participation rate. This is also a capped amount.

In addition, because this kind of policy is a permanent insurance policy, it holds other benefits for the policyholders as well. For example, just like any permanent insurance policy, the cash value of the policy is tax deferred. Moreover, the transferred benefit at the time of death is tax free to the beneficiaries.

There is also a minimum interest rate that is guaranteed to the policy holder at the time of signing. This means that all accrued cash value will gain a certain percentage every year, guaranteed to the holder of the policy or the beneficiary should there never be a loan against it.

With so many benefits and guarantees of these policies, it is easy to see why many are willing to pay the extra price and take the risk on them. However, keep in mind that when purchasing insurance such as this, it is not for the inexperienced insurance policy holder. A person looking to purchase a policy for the first time should seriously consider other alternatives before looking into this one.

There are many pitfalls that could come into play if the insurance is not handled correctly, and the novice would not know the first thing about what to do to gain back his credit rating and money lost. Unless the novice has played the market and knows the risks, it is not for him.

Some of these choices are great for many people in different situations. However, because of the cost and risk involved, they are not so good in others. It is advisable to talk to your financial adviser about all of the choices available to you for your situation to make the proper choice for you and your family. When you have found that the equity indexed universal life insurance policy is the way to go, the rewards can be most beneficial.

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