Life Insurance Awareness Month

Two Dimensional Life Planning

Leveraging the dual benefits of indexed UL

by Raymond Caucci

Mr. Caucci is the senior vice president of Product Management, Underwriting, and Advanced Markets at The Penn Mutual Life Insurance Company. He is responsible for product development, product management, product implementation, product business analysis, policy forms filing, underwriting, and advanced sales. In this role, he ensures Penn Mutual’s insurance and annuity products meet the needs of policyholders. For more information, please visit

Indexed universal life policies can go a long way in providing clients with two critical aspects of any prudent financial plan: death benefit protection and range-bound growth in accumulated value within the product.

Savings Component with Stable Returns

Indexed universal life offers a vehicle to build up cash value that can be used later in life or in retirement. The interest credited on indexed universal life policies is typically based on the performance of an equity market index (excluding dividends) within a specified range of outcomes (usually 0% to a rate above 10%). While the credited interest is based upon the performance of an equity market index (it is not possible to invest directly in an index), the insurance company supports the credited rate through investments in its general account.

In today’s world of low interest rates, indexed universal life insurance policies provide the potential for strong credited rate performance with the security of a credited interest floor. Of course, the death benefit will always be there to protect the client’s loved ones should they need it.

Indexed universal life policies possess the flexibility that has historically been part of a universal life policy structure. The ability to vary premium patterns within specified limits and to reduce or increase the death benefit amount (subject to acceptable evidence of insurability) allow an indexed universal life policy to adjust as a policyholder’s circumstances change.

The policyholder can access the cash value that accumulates within the indexed universal life policy for any reason that they see fit. Access takes the form of a withdrawal of cash value directly from the policy or via a loan from the policy using the cash value as collateral. Tapping the cash value inside an indexed universal life policy does have a trade-off in a reduced death benefit. If the cash value access is made through a policy loan, re-payment of the loan restores the death benefit to the pre-loan level. Accessing a policy’s cash value may result in surrender fees and charges, and, under certain circumstances, the withdrawals may be taxable.

Identifying a Client Fit

If the cash value access is made through a policy loan, re-payment of the loan restores the death benefit to the pre-loan level

We typically see advisers position indexed universal life policies as a way to provide death benefit protection during a client’s working years along with a vehicle to supplement income in retirement through the access to cash value inside the policy. The typical age of an indexed universal life buyer in this scenario is between 40 and 50. These policies are best suited for individuals with more time before retirement to help build up the cash accumulation component and bring in meaningful returns.

For those clients seeking to provide death benefit protection while working and supplementing income at retirement, it’s best to have the client stick to a plan of making regular fixed premium payments to optimize policy performance. When it comes to building and protecting income, this discipline will really pay off when applied to an indexed universal life insurance policy thanks to its dual benefits.

Indexed universal life insurance clearly represents a compelling product for many clients, but when selling the product, advisers might have to do a little extra explaining to their clients to accurately show it is a good fit.

Breaking Down Conventional Wisdom

Throughout my career, I’ve heard that many clients approach the conversation of life insurance with their advisers in a one-dimensional manner. They simply propose the question, “What protection can I get at what cost?” It feels as though the consumer thinks of life insurance the same way they do car or home insurance. But this line of questioning only scratches the surface in terms of what life insurance can offer.

Advisers should shift the conversation in a way that shines a light onto the product’s dual benefits. Indexed universal life insurance has the ability to provide protection against premature death AND allows the client to grow wealth in a manner that is accessible throughout their lifetime and in retirement.

By taking the time to explain it, clients will see the value and how indexed universal life can be a vehicle that helps them achieve their financial goals, no matter their life situation. Run scenarios that demonstrate how indexed universal life policies provide benefits to a client or to a client’s family whether the client lives a long life or dies prematurely. Discuss how indexed universal life can contribute to their wealth protection and accumulation goals.

While indexed universal life insurance might not be a perfect fit for everyone, it has the potential to fill a much larger role within the financial ecosystem. However, spreading its benefits to more Americans will necessitate advisers to take the extra time required to thoughtfully articulate its value. ◊