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Indexed universal life insurance links cash value to market index gains
The policy’s cash value is credited based on a stock index benchmark, and policy loans or withdrawals can reduce the death benefit and risk lapse.
Indexed universal life insurance, or IUL, is a form of permanent life coverage that pairs a death benefit with a cash value account that can grow while the policy stays in force, according to Yahoo Finance.
Unlike whole life policies that credit cash value at a fixed interest rate, IUL cash value growth is tied to the performance of a market index such as the S&P 500, the Dow Jones Industrial Average, or the Nasdaq Composite.
The money is not directly invested in the stock market. Instead, the insurer uses the selected index as a benchmark to determine how much interest to credit to the cash value portion.
As with other cash value life products, policyholders may be able to borrow against the balance or withdraw funds, but Yahoo Finance notes that loans and withdrawals can reduce the death benefit and, if not managed carefully, may lead to a policy lapse.
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