Indexed universal life insurance is a lot like universal life insurance, however, it does have a couple of wrinkles not found in traditional universal insurance policies. Universal life insurance comes in many different forms, from your basic fixed-rate policy to variable models that allow the policyholder to select various equity accounts in which they can invest. An indexed universal life insurance policy gives the policyholder the opportunity to allocate cash value amounts to either a fixed account or an equity index account. Indexed policies offer a variety of popular indexes to choose from, such as the S&P 500 and the Nasdaq 100.
Indexed policies allow policyholders to decide the percentage of their funds that they wish to allocate to fixed and indexed portions. Also, these types of universal insurance policies typically guarantee the principal amount in the indexed portion but cap the maximum return that a policyholder can receive in said account. Since these policies are seen as a "hybrid" universal life insurance policy, they are usually not very expensive (due to lack of management), and are safer than an average variable universal life insurance policy. However, the upside potential is also limited when compared to variable policies.
Author: Lovey Grewal
Source: Investopedia, LLC.
Retrieved from: www.investopedia.com