Tips For Reviewing And Monitoring Indexed Universal Life Insurance Policies Regularly

​Indexed Universal Life (IUL) insurance is a popular choice for individuals looking for both life insurance protection and the potential for cash value growth. Unlike traditional whole life insurance, which offers a fixed return, IULs are tied to a stock market index, offering the potential for higher returns. However, with the dynamic nature of these policies, regular monitoring and reviewing are essential to ensure that the policy is meeting your financial goals. In this blog, we’ll discuss why and how to review and monitor your IUL policy regularly to keep it on track and aligned with your long-term objectives.

1. Understand How Your IUL Works
Before diving into the specifics of monitoring your policy, it’s crucial to understand how IULs operate. IULs combine a life insurance component with an investment-like cash value account. The cash value grows based on the performance of a chosen stock market index (like the S&P 500), but with a cap and floor to protect against extreme market fluctuations.

• Index Participation Rate:
  This is the percentage of the index’s return that is credited to your policy’s cash value.
  
  
• Caps and Floors:
  There’s usually a cap, which limits the maximum return on your investment, and a floor, which protects you from losing money if the market declines (often set at 0%).
  
  
• Cost of Insurance:
  The cost for life insurance coverage, including the death benefit, increases as you age and may affect the growth of your cash value.

Having a clear understanding of these features will help you better monitor the policy's performance and evaluate whether it aligns with your goals.

2. Review the Cash Value Growth
The primary reason people buy an IUL is for the potential of cash value accumulation. However, the growth of cash value depends on various factors, including the performance of the underlying index and the caps set by your insurance company.

• Check the Annual Performance:
  Each year, review how your policy’s cash value has performed based on the index return. Compare the credited interest to the cap and floor limits, ensuring that the policy is growing at the expected rate.
  
  
• Track Fees and Costs:
  Look at the administrative fees, cost of insurance, and any other policy charges that could impact the growth of your cash value. These costs can change over time, especially as you age, and can affect the policy’s performance.

If your policy’s cash value isn’t growing as anticipated, it might be time to reconsider your options or speak with your insurance advisor about making adjustments.

3. Evaluate the Death Benefit
The death benefit is the primary purpose of any life insurance policy, and IULs are no different. However, with an IUL, the death benefit can either be fixed or increase based on the growth of the policy’s cash value. It’s important to evaluate how the death benefit has changed and whether it still meets your needs.

• Fixed vs. Increasing Death Benefit:
  If your policy offers an increasing death benefit, the payout will grow as your cash value increases. This could be advantageous if you want to ensure that your beneficiaries receive a higher amount. However, if the policy’s cash value growth slows down, you might find that the death benefit does not grow as expected.
  
  
• Adjusting Coverage:
  Life changes—such as marriage, having children, or changes in income—might affect your insurance needs. If necessary, you can adjust your IUL to increase or decrease the death benefit or switch between the fixed and increasing options.

Reviewing your death benefit regularly ensures that the policy continues to provide the protection your family needs.

4. Monitor Policy Loans and Withdrawals
Many policyholders use their IUL’s accumulated cash value to take out loans or make withdrawals. While this can be a useful financial tool, it's important to monitor these loans closely, as they can impact both the cash value and the death benefit.

• Interest on Loans:
  Loans taken against the cash value of your IUL accrue interest, and if not repaid, this interest will be added to the outstanding loan balance. Over time, this can reduce the cash value and the death benefit. If you have an outstanding loan, make sure you’re aware of the terms and interest rates.
  
  
• Withdrawals Impact:
  If you make withdrawals, they will reduce the cash value and may also lower the death benefit. It’s important to evaluate how these withdrawals will affect the long-term growth of your policy.

Regularly check the outstanding loans or withdrawals to ensure they are not negatively impacting your long-term financial goals.

5. Check the Policy’s Charges and Fees
Like any insurance product, IUL policies have associated fees that can affect their overall performance. These include:

• Cost of Insurance (COI):
  This is a fee charged for providing the life insurance coverage. It increases with age and can eat into the cash value growth.
  
  
• Administrative Fees:
  These are charges related to maintaining the policy. Depending on the insurer, these fees may increase over time.
  
  
• Surrender Charges:
  If you decide to cancel the policy early, you may face surrender charges, which can impact the value of your policy.

Review these charges annually to ensure they are in line with your expectations. If the fees are too high, it might be worth discussing other options or comparing policies with different insurers.

6. Consult with Your Insurance Advisor Regularly
An IUL is a complex product that requires ongoing monitoring, and it's often beneficial to consult with your insurance advisor periodically. Your advisor can help you interpret the policy’s performance, review the policy’s current structure, and make recommendations based on changes in your life or financial goals.

• Adjusting the Index or Allocation:
  If the market conditions change, your advisor may suggest adjusting your index allocation to take advantage of different market trends. This can help maximize growth potential.
  
  
• Policy Adjustments:
  Your advisor can also help you make adjustments to the policy’s premiums, death benefit, or coverage options to ensure it continues to meet your needs.

Regular consultations with your advisor will help ensure that your policy remains aligned with your goals, particularly as your life circumstances evolve.

7. Stay Informed About Market Conditions
Since an IUL’s cash value is tied to the performance of a stock market index, it’s important to stay informed about market trends. While your IUL has a cap to limit losses in a downturn, understanding how market conditions affect the growth potential of your policy can help you make more informed decisions about your coverage.

If you’re concerned about the volatility of the stock market or how it’s impacting your policy’s performance, speaking with your advisor about adjusting the indexing strategy or exploring other options is a good way to stay proactive.

Conclusion
Indexed Universal Life (IUL) insurance can be a valuable financial tool, combining life insurance protection with the potential for cash value growth. However, regular monitoring and reviewing are essential to ensure the policy is working as planned. By keeping an eye on your policy’s cash value, death benefit, loan status, and associated fees, and by consulting with your insurance advisor, you can ensure that your IUL continues to meet your evolving needs. Staying proactive and informed will help you make the most of your policy, allowing it to provide the long-term protection and financial benefits you’re looking for.

At The Drennon Agency, we aim to provide comprehensive insurance policies that make your life easier. We want to help you get insurance that fits your needs. You can get more information about our products and services by calling our agency at (469) 631-4673​​. Get your free quote today by CLICKING HERE. 

Disclaimer: The information presented in this blog is intended for informational purposes only and should not be considered as professional advice. It is crucial to consult with a qualified insurance agent or professional for personalized advice tailored to your specific circumstances. They can provide expert guidance and help you make informed decisions regarding your insurance needs.​