Q:

What is indexed universal life insurance?

A:

Quick Answer

Indexed universal life insurance provides most of the features found in other universal life policies with the added option of investing a part of the policy equity in the performance of one of the major stock indexes. The potential investment gain is capped, but the investment principal is guaranteed.

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Full Answer

Like other universal life policies, a portion of the annual premium goes toward meeting the term insurance component, which provides the death benefit. After deducting other fees, the remainder of the premium accrues to the total policy cash value, which is available for investment.

The policyholder may allocate a percentage of available funds between fixed rate investments and options tied to the performance of one or more stock indexes. Funds tied to stock index performance earn an interest rate equal to the percentage increase in the index during the time invested.

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