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Equity-Indexed Universal Life Insurance

Equity-indexed universal life insurance (EIUL) is a type of permanent, cash value life insurance. Like universal life insurance (UL), EIUL offers you the ability to change your level of protection, premium amounts, and payment frequency.

EIUL Background
Life insurance companies develop new products to meet changing insurance needs and demands. For many years, whole life insurance (WL) met the need for permanent life insurance protection by providing a permanent death benefit, fixed premium, guaranteed minimum interest, and sometimes dividends. But WL does not offer you much flexibility relative to premiums, death benefits, and earnings.

Universal life insurance adds flexible policy features not found in whole life. UL gives you options regarding the timing and amount of premium payments, and the opportunity to change your death benefit. UL policy cash values earn a minimum interest rate, and may earn higher interest if the policy issuer’s investments perform favorably.

How does it work?
EIUL is a form of universal life insurance with excess interest credited to cash values. But, unlike UL, the amount of interest credited is tied to the performance of an equity index, such as the S&P 500. Like some UL insurance policies, most EIUL policies provide a minimum interest credited to cash values, even when the index produces negative returns. Some EIUL policies offer a minimum death benefit. As long as the premium is paid on time, the coverage will not lapse.

Cash value may be withdrawn
Cash values in EIUL grow tax deferred, meaning, in most cases, you do not pay income tax on interest credited to cash values within the policy. However, you can access the policy’s cash value during your lifetime. You can take tax-free withdrawals up to your policy basis (premiums paid), and you can take policy loans against the cash value as well. Cash withdrawals may be subject to surrender or withdrawal charges that would reduce the policy’s cash value. Also, cash withdrawals and policy loans may reduce the policy’s death benefit and cash values.