IUL Explained: How Indexed Universal Life Insurance Actually Works

Most people have been taught that there's only two places to save and invest your money, the bank or the stock market, but each one has a weakness. Bank accounts are safe, but they don't grow. The stock market can grow, but it can also crash. What if I told you there was a third option, a financial account that gives you tax-free growth and tax-free access with no risk of losing money in the market, and it comes with permanent life insurance protection? Now, it might sound a little bit too good to be true, but that's exactly what an Indexed Universal Life Account, or an IUL, is. In the next few minutes, we will discuss what makes an IUL different from any other insurance-based product, how the money inside an IUL grows accessible tax-free, and how you can access it during your lifetime without paying any taxes or penalties. Now, my name is Amanda Ryba. I've been designing IUL policies for clients for over a decade. I've helped over 1,000 people set these policies up correctly. I've trained thousands of licensed agents on how to do it too, and now I've been producing content here on social media for the past four years, teaching not just agents, but potential future clients, the right and the wrong way to do this. So today, we're going to dive into exactly what an IUL is. First, what is an IUL? An IUL stands for an Indexed Universal Life Policy, which is basically a type of permanent life insurance. And when I say permanent life insurance, I mean life insurance that you'll have for as long as you live. So at any point you pass away in your lifetime, as long as the policy is in force and active, whatever the death benefit is of the policy will pay out to your beneficiaries 100% tax-free. Now, here's where it gets interesting. IUL policies and really any form of permanent life insurance, for that matter of fact, has the ability to grow this cash value component behind the life insurance that you can access at any time in the future for anything that you need 100% tax-free. Okay, so how does the cash value grow? Well, instead of growing like a normal checking or savings account or being invested in the stock market like a traditional 401k or IRA, the money actually grows linked or tied to the performance of a stock market index of your choosing like the S&P 500. But here's the key. Instead of the money be directly invested inside of the stock market like it is with your 401k or IRA, the money is more so just linked or tracking the stock market index. So what happens is when the stock market goes up, your money will grow typically up to a certain point. The insurance company is always going to take a little sliver off the top, maybe put in a cap, a spread, or a fee. But that guarantees you that when the stock market goes negative, you don't lose any money. Most IULs come with a 0% floor, meaning you can't lose anything when the market goes negative. You can only earn when it's positive. Okay, so how does the cash value grow accessible tax-free? Well, it doesn't. Technically, the cash value grows tax-deferred. You just have the ability to access it tax-free through a unique feature that you don't get with a bank account or a 401k or IRA, and that's called a policy loan. That gives you the ability to actually borrow out or borrow against the cash value that's growing and compounding inside your account. So this gives you access to the money you put in, plus all the interest that you earn inside the account 100% tax-free. And with certain loan types, you can actually borrow against your cash value, meaning you're not interrupting your ability to grow and earn compound interest on the higher dollar amount. And you can get access to that at any point in your life for anything that you need. Yes, of course, supplemental income and retirement, but maybe you want to make a purchase and buy some real estate. Maybe you need to help pay for your kid's college. Maybe you're ready to start a business. You can get to it for anything that you need without penalties or taxes. So question for you, would you rather have your money in an account where it grows without any risk of losing money and it grows accessible to you at any point in the future 100% tax-free, or would you rather have your money in an account where it grows riding the rollercoaster wave of the stock market and it's not accessible at any time you want without taxes or penalties? Drop the one you prefer in the comments below. I'd love to hear your thoughts. So to recap, an IUL gives you permanent life insurance protection, market-linked growth without any risk of loss, and tax-free access to your money while you're alive. An IUL, hands down in my opinion, is one of the most versatile financial products that exist in the market today if it's designed correctly. The only downside that I see is the fact that there is an approval process. The insurance company is going to do a check on you. They're going to look at your age, your health history, and your criminal background, take a look at all that, give you a risk class, and that's ultimately going to determine whether or not the product makes sense to use it for these features. If you found this video helpful, please drop a comment below and let me know. Share this video with anyone you know that is looking for more information on these products. If you are looking to learn more, YouTube is recommending you take a look at these two videos. And as always, subscribe because you won't miss another video teaching you all the latest and greatest tips and tricks you can do with your money. I'll catch you back here next week on YouTube.