There are several options to choose from when buying a life insurance policy, so much so that it can be confusing to decide which one is right for you. Indexed life insurance is one of the options you’ll be offered.
If you consider yourself an aggressive investor with confidence in the stock market or want growth-based life insurance coverage, then indexed life insurance would be perfect for you.
Here’s all you need to know about indexed life insurance, including how much it will cost you.
What is Indexed Life Insurance?
An indexed life insurance policy is a permanent life insurance package. This means that it offers coverage for an entire lifetime, provided you keep paying your premiums. An indexed life insurance offers higher cash value growth as it’s tied to the market index. Hence, the account can grow significantly over the years if market performance is strong. This, however, comes with the risk of the value falling drastically during a bad market year.
How Indexed Life Insurance Works?
Indexed life insurance, like all other permanent life insurance policies, has a death benefit. The policyholder will make monthly premium payments to keep the policy running, so when they pass away, their beneficiary will receive a payout. Indexed life insurance also has a cash value that is similar to a savings account. When you make premium payments, a portion of it goes towards your death benefit, administrative fees, riders, and others. The remaining portion goes to a savings account.
What makes indexed insurance policy different from others is that its cash value is tied to the index market. The insurance firm invests the money in your savings account in the stock exchange market to grow its value and earn interest. As the balance grows over time, you can use it to supplement your premium payments instead of paying out of your pocket. You can also use the money to increase your death benefits or borrow it to cover emergency financial issues.
Upon purchasing an indexed life insurance policy, you’ll be required to choose the type of index you want to invest in, like the S&P 500 or Dow Jones. Most indexed policies have a cap, which is the maximum interest you can earn. Some also have the floor, which stipulates the lowest interest an account can earn.
Who Needs Indexed Life Insurance?
Indexed life insurance is a great option for anyone confident in the stock market and wants to use it as a vehicle to grow their insurance policy. You need to know how the stock market works, so you can choose the best funds to invest in.
The Pros and Cons Of Indexed Life Insurance Policy
Pros
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Flexible death benefit
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Cash value account (to pay premiums)
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Higher growth potential (based on stock market performance)
Cons
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Quite expensive
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Cap on interest earned
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Risk of losing your money
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Higher premiums (additional fees for managing stock market investments)
How Much Will Indexed Life Insurance Cost?
Indexed life insurance is one of the most expensive life insurance options out there. Your premium would depend on various factors like your health, age, lifestyle, and gender. Most insurance companies will require that you undergo a medical exam which will be used in calculating the amount of premium you should pay. Your premium will also be higher if you need more coverage. For instance, if you want a death benefit of $2 million, you’ll pay a higher premium than someone who wants a $500,000 death benefit.
Additionally, the riders you include in your policy can also increase your premium.
Buying an Indexed Life Insurance
Buying indexed life insurance isn’t difficult as long as you pass the medical exams. Numerous insurance companies offer indexed life insurance policies, including AIG, Nationwide, Prudential, John Hancock, and Transamerica. Here’s how to go about buying one.
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Meet with an agent: they will provide all the information you need to know about the policy, including the growth projections, past performance, fees, and caps.
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Take the medical exams: you’ll undergo medical exams where a medical professional will take your vitals, look through your medical records and ask you questions about your lifestyle.
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Structure your policy: once approved, you can work with an agent to structure your coverage as you want. You’ll choose the riders you want, the death benefit, and the investment index before signing the policy.
Frequently Asked Questions (FAQs) About Indexed Life Insurance
What factors affect the cost of indexed life insurance?
Like any other insurance policy, factors like health age, gender, lifestyle, and the riders and payout you choose will affect the price. The most significant factor, however, is health, followed by age.
Is indexed life insurance right for me?
Indexed life insurance is ideal for people of all ages. Though it’s pricier, it has growth potential.
Who benefits the most from indexed life insurance?
People who are knowledgeable about the workings of the stock market can choose the suitable investment that will grow their cash value. Otherwise, you stand the risk of losing your cash value.
