The indexed accounts are credited with interest based on the growth in one or more indexes and there is a guaranteed growth rate within the policy. Life insurance is designed to protect your loved ones if there is a premature death in your family. 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. The cash value within the policy can be utilized as a way to generate tax-free income for retirement.
In other words, this type of policy serves two purposes:
• The face amount provides protection for your family in the case of a premature death.
• The cash value growth over the years can generate tax-free income during retirement.