Universal Life Insurance
A type of flexible permanent life insurance that allows adjustable premium payments and death benefits within certain limits, with cash value earning interest based on current money market or bond rates.
Understanding Universal Life Insurance
Traditional universal life (UL) is the predecessor to IUL. UL credits interest based on the insurer's portfolio returns, typically linked to bond yields. When interest rates are low, UL policies may struggle to maintain adequate cash value growth. IUL was developed as an improvement, linking returns to market indices while maintaining the floor protection. UL policies that were not adequately funded during low interest rate periods have sometimes lapsed unexpectedly.
Why This Matters for Retirement: Understanding Universal Life Insurance is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.