A. An indexed universal life product provides premium flexibility as well as death benefit flexibility, it has two broad categories of objectives, which as illustrated below, have natural conflicts.
- Death benefit objective: minimum premium payment, maximum death benefit
- Cash value objective: maximum premium payment, minimum death benefit
The first objective is to pay as little in premium as possible in order to get desired death benefit. Some IUL policies have a death benefit that is guaranteed for a certain number of years as long as the consumer pays the "minimum no-lapse" premiums. There could be lower cost insurance options than IUL, for example, term life or guaranteed universal life (Perm Term" as I call it. However, with IUL, consumers may choose to pay higher premiums because it provides the death benefit protection AND the ability to accumulate cash value that can be accessed for various reasons such as emergencies, education expenses, retirement funds, etc.
The second objective is what most people purchase IUL for. Consumers with this objective have a strong focus on cash value growth and want to minimize the cost of insurance charges which will eat out cash values. This objective is to generate enough cash value in the policy so that the policy holders can take out policy loans against the policy later - usually tax free.