The Power of Compound Interest in IULs

When people think of life insurance, they usually think of the death benefit. But an Indexed Universal Life (IUL) policy has a powerful living benefit: the potential for tax-advantaged cash value accumulation driven by compound interest.

What is an IUL?

An IUL is a type of permanent life insurance. A portion of your premium pays for the cost of insurance, while the rest goes into a cash value account. This cash value is credited interest based on the performance of a stock market index, like the S&P 500, without directly participating in the market.

How Does Growth Work?

IULs have two key features that protect and grow your money:

• Floor: This is the minimum interest rate your cash value can be credited, which is typically 0%. This means even if the market index has a negative year, your cash value doesn't lose money.
• Cap: This is the maximum interest rate you can earn in a given period. If the index performs exceptionally well, your earnings are capped at this rate.

The Magic of Compounding

The interest credited to your cash value is compounded, meaning you start earning interest on your previously earned interest. Because your principal is protected from losses by the floor, you never have to recover from a down year. This allows for more consistent, uninterrupted compounding over the long term.

Over decades, this can create a substantial asset that you can access tax-free via policy loans for things like supplementing retirement income, paying for college, or starting a business. It's a versatile financial tool that provides protection and growth in one package.