Indexed Universal life

What is an IUL policy?

Indexed universal life (IUL) is an insurance policy that, like all life products, has a death benefit. But, in addition, an IUL can help in your overall retirement strategy in many ways. For clarity, and IUL falls under the category of permanent life insurance. With these types of policies, you may have the chance to see a reasonable rate of return**. This means IUL owners may see both an increase in the value of their policy as well as have the security of a payout upon their death. What is an IUL policy? In short, it allows you protection of your money as well as a potential increase in the policy value. Most people like the IUL due to the fact that they can take income from it, tax-free.*

While Orfin and Associates can also help you with term or permanent life insurance, an IUL is a product that works best for those entering or in retirement. An IUL policy is held via an insurance company. Therefore, your money has protection. In fact, the money put into this type of product is not at risk in the stock market at all. Instead, the rate of return you may receive connects with an index. Therefore, it is possible to see a reasonable rate of return** with your IUL cash value. Then, even if the stock market happens to be down, your initial money has protection. Regardless of what the market decides to do, your money is safe from downturns in an IUL.

Senior Couple with Umbrella Walking in Park During Autumn What is an IUL Policy Michigan

What is an IUL Policy For Retirement?

Basically, after you deposit money into your IUL, part of this premium covers the cost of life insurance protection. The money left over becomes your cash value. This part of the policy may link to an index, which could provide an interest rate. To further explain, a market index is not the same as the market itself. An index may follow a similar pattern as the market, but your money is not at risk from the market. For instance, the S&P 500 index may show a rate of return somewhat similar to the S&P 500 stocks. However, the market does not directly impact your money. If the cash value in your IUL rises, it is due to the index. On the other hand, if the market drops, your cash value remains stable. This can happen because your money does not participate directly in the market itself.


Also, an IUL may offer flexibility in terms of which index you choose. In addition, you may choose many different indexes if you like. Hence, some retirees actually create diversify with their IUL cash value. They might have some of their money producing a fixed interest rate, while another portion changes with an index. Also, you could potentially “average” out your returns here depending upon your strategy. Of course multiple possibilities are available, so be sure to learn which ones may be right for you.


What is an IUL policy is it isn’t offering lifetime protection? Because an IUL is an insurance product (versus a true investment), you may have more flexible options. For example, laws regarding taxes and rules about your policy may be different with an IUL than a traditional retirement account. With an IRA, 401(k), or other qualified plans, you may notice that there are contribution limits. In addition, you may be limited on how much you can take out and when you can take it. However, IUL’s do not have these regulations. Also, when comparing with other financial products, an IUL may allow for earlier withdrawal. This is because there are no fines for taking money out before age 59 1/2. Additionally, IULs do not require minimum distributions (RMD’s) at age 72, either.


IUL’s a generally considered conservative place to put your money. Even when the market has a downturn, your life insurance does not with an IUL. The money in cash value may grow if the index grows but won’t disappear if the market happens to crash. Retirees may enjoy peace of mind knowing their money is safe. Of course, no one can ever be sure how the market values will change. So, and IUL may be part of an overall strategy for protecting your income.

Smiling Senior Couple Having Picnic What is an IUL Policy Michigan
Couples in Green Foliage What is an IUL Policy Michigan

You may experience other benefits with an IUL as well. For instance, you could choose how much to fund your IUL upfront. Some retirees put as much money as they can in all at once. Then, they use this money as a tax-free* income source. However, you could also contribute money slowly over time. In this case, your deposits may be slow due to rolling over money from other types of accounts. Be sure to find out the rules and any taxes that may apply. If you have questions, just reach out and we’ll be glad to lend a hand.

Your Family's Future

After you’re gone, you may want to leave some of your wealth to your family. One benefit of an IUL is the death benefit may be larger than the amount you initially put in it. This is because the death benefit may increase over time, depending upon the performance of the IUL’s index. No probate court in necessary with an IUL benefit, either. Your beneficiaries simply receive what you want them to get without the hassle of probate. In addition, the funds they get from this death benefit are non-taxable.

More About IUL's

Although there is quite a bit to learn about IULs, Orfin & Associates team is here to help you. Reach out to find out more.

**Reasonable rate of return over time. 

*Proceeds from an insurance policy are generally income-tax-free, and if properly structured, may also be free from estate tax. Income-tax-free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce the death benefit, or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract. The Host and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. This content is not intended to serve as the basis for any investment or purchasing decisions, nor does it recommend or involve the purchase, holding, or sale of a security.  All figures herein are hypothetical and for illustrative purposes only to explain general concepts.  No figure is to be relied upon as being accurate nor a guarantee or projection and is meant only as a partial overview of some relevant features and benefits of general insurance products that may be in the marketplace, and whose availability will be dependent on the State of residence of the consumer, and their individual suitability for the product they are wanting to purchase. Where insurance products are mentioned, any and all guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

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