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How to Open an IUL Account

Updated 
April 16, 2024
9
 min read
CEO, Capital for Life
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How to Open an IUL Account

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How to Open an Index Universal Life (IUL) Account - A Detailed Guide

Have you already decided on investing in an Index Universal Life Insurance (IUL) policy? If so, you'll want to know how to open an account, and we are here to help. It's worth taking the time to understand your choices and account opening process before you start. The choices you make today are important for a long-term financial solution like an IUL.

What you'll find in this guide:

  • The steps to open an IUL account
  • How IULs work and your investment choices
  • Selecting the best IUL features for you
  • Understanding IUL medical requirements
  • Funding your IUL: single pay, multi-pay, or premium financing
  • How to monitor your IUL after it's opened

Let's get started.

What is an IUL (Indexed Universal Life Insurance) Account?

An IUL account is a type of universal life insurance that features stock market index-linked investing. IUL offers lifelong insurance protection alongside a savings or cash value component that grows through market performance.

How does an IUL Account Work?

Indexed Universal Life Insurance (IUL) is whole life insurance with a cash account linked to stock or market indexes and returns. Some of the policy premium is used to pay for life cover. The rest of the premium captures is invested, typically in one of two ways:

  • A fixed account builds cash value through a fixed rate of interest, which the insurer will announce each year. Once announced, the interest is guaranteed, meaning fixed account returns are more stable than returns linked to equity-indexed accounts.
  • An equity-indexed account that grows with the performance of a stock market index. The most popular strategy with investors is linking policy returns to the S&P 500 index. This type of account’s growth depends on this index's performance and offers ULI investors a way to participate in market gains.

IULs allow you to allocate money into an equity index account or savings component according to your needs and financial goals. That means you can build cash value in just one account or try to balance investing in both accounts to balance investment risk and potential rewards.

How to Open an IUL Account

You can open an indexed universal life insurance (IUL) account by applying for a policy through a life insurance agent like Capital for Life. Different insurance companies may have different procedures for policy applications, but here are the common steps you will follow:

Identify Your Needs

Before considering an IUL policy, carefully assess your life insurance needs and overall financial goals. Here's why:

  • IUL Suitability: IULs are a good fit if you want whole life insurance protection and the potential to build cash value within your policy.
  • Prioritise Life Coverage: The most important decision is determining the right amount of life insurance coverage. This will form the foundation of your ULI policy.

How to Determine Your Life Coverage

  • Financial Obligations: Consider debts, mortgages, and future expenses for your dependents.
  • Income Replacement: Calculate how much income your family would need to maintain their standard of living.

Need Help? A financial advisor can assist you in making these important calculations and exploring whether an IUL aligns with your overall financial plan.

Understand the Cash Value Component and Investment Options Available with IULs

The cash value component and investment options are integral parts of your IUL account. Make sure you understand them before committing to purchasing an IUL.

Cash Component: This portion of your IUL policy can accumulate value over time. Your earnings are often linked to the performance of a market index. Importantly, many IULs offer a minimum guaranteed interest rate, ensuring some protection even during market downturns. You may be able to access this cash value through policy loans or withdrawals, although this can impact your overall coverage.

Investment Options: IUL insurance policies usually provide a variety of investment options to meet your risk tolerance These might track a well-known stock index like the S&P 500 or offer more specialised strategies. Some insurers also offer fixed interest accounts for a portion of your cash value, providing a guaranteed return with less volatility.

The specific investment options, interest rates, and fees associated with IUL policies vary significantly between insurance companies. Thorough research and consultation are essential before deciding.

Research Different Insurance Companies and Policies

Once you’ve identified your life cover need and investment risk appetite, research life insurance providers and their financial strength and IUL product range. Here's what to focus on:

  • Financial Strength: Prioritise insurance companies with a strong financial strength rating. This ensures they can reliably pay out death benefit claims when needed. Look for independent credit ratings from agencies like A.M. Best or Standard & Poor's.
  • IUL Product Range: Explore the specific IUL policies offered by each insurer. Compare features, fees, investment options, and potential returns.

Choosing a financially stable insurance company is crucial for safeguarding your long-term investment and your family's future protection.

Engage a Licensed Insurance Agent

Find a knowledgeable life insurance agent who specialises in IUL insurance and works with multiple life insurance companies to find the best policy for you. They can explain details and help you select a policy that aligns with your goals.

Review ULI Eligibility Requirements

To open an IUL account, you'll need to meet specific requirements of the life insurer. Here's a breakdown of the typical factors:

  • Insurable Interest: You must demonstrate a financial reason for needing life insurance on the insured person (often yourself). Be prepared to explain why you need the specific amount of coverage.
  • Age and Health: Insurance companies have age and health guidelines. Medical exams are often required. If you have any pre-existing conditions, discuss these upfront with your insurance agent before you attend the medical and be sure to raise them with the doctor at your examination.
  • Location and Occupation: Your residency and job may sometimes influence your eligibility.
  • Net Worth/Income: Most ULI insurers have requirements for your net worth or income, especially for larger policies.

Your eligibility for a ULI policy will be determined through this underwriting process.

Complete an Application

Your professional advisor will assist you in filling out the necessary forms and application for your indexed universal life insurance policy. Be prepared for a somewhat detailed process. Follow your agent's guidance carefully to ensure all paperwork is completed, accurate and truthful.

Undergo a Medical Exam

Most insurance companies will require a medical examination as part of your ULI policy application. This typically involves blood tests, an echocardiogram, a treadmill test, and possibly a chest X-ray (if you're a smoker). You'll also have a consultation with a doctor to discuss your personal and family medical history. Be prepared to provide details about your medications, recent hospital visits, and even routine check-ups.

Preparing for Your Medical Exam

To optimise your results and potentially secure the best life insurance rates, take care of your health before the exam.  Here's what to do:

  • Avoid alcohol: Refrain from drinking for at least a couple of days before your test.
  • Hydrate: Drink plenty of water the night before and the morning of your medical assessment.
  • Fast: Don't eat for 12 hours before your medical exam to ensure accurate test results.
  • Rest: Get a good night's sleep before the appointment to help you relax.
  • Running Shoes: Take your trainers for the treadmill test.

Review your Offer and Choose Your Policy

Once you receive offers of insurance, carefully review your offers with your life insurance agent. If you don't understand all the life policy's terms ask your advisor to explain them. Select the policy with the features and benefits that best suit your needs.

Once you have chosen which policy you want, it's time to decide how you will own your ULI.

Structuring your ULI Ownership

Indexed universal life insurance policies are often held within structures like offshore trusts or offshore companies. The best choice for you depends on your reasons for purchasing the ULI:

Estate Planning: If your primary goal is estate planning, consider using a trust to hold your policy. This can offer advantages in asset protection and inheritance.

Lifetime Cash Value Access: If you plan to utilise the cash value for loans or for business purposes, a company structure might be more suitable.

It is critical to seek expert guidance. Consult your financial advisor or life insurance agent to determine the most advantageous structure for your specific situation. They can provide tailored recommendations based on your individual needs and objectives.

Calculate Insurance Costs and Plan your Premiums

To calculate your insurance costs, carefully review your offer of insurance. Request an updated ULI illustration that reflects your current premium amounts. It's important to ensure these payments fit comfortably within your budget. This will help prevent potential lapses in coverage due to missed payments.

A key benefit of ULIs is their flexible premium structure. Your coverage will continue even if you miss or delay a payment, as long as your policy has a positive account value. Once you're satisfied with the costs, the next step is to determine your preferred funding method.

Questions to Consider When Choosing a ULI Funding Method

Your ULI funding strategy should directly support your overall financial goals for the policy. Here are some key questions to ask yourself:

  1. Upfront vs. Over Time: Would you prefer to make a substantial upfront investment, or are smaller, regular payments a better fit for your budget?
  2. Loans vs. Savings: If you need to finance your premium payments, should you consider using loans or tapping into your existing savings?

Making ULI Premium Payments

Let's explore the two main funding options:

  1. Single-Pay: This involves making one large, lump-sum payment. It's ideal if you have readily available funds and want to maximize potential growth within the policy.
  2. Multi-Pay: This offers more flexibility by spreading payments over a set period (e.g., 5, 10, or 20 years). It's a common choice if you prefer to manage the cost of coverage in instalments.

Your ideal way of funding your universal life policy will depend on your unique financial situation and the specific objectives you have for your policy.

Sign the Contract and Set Up Payments

Once you’re ready to commit, sign the application contract. To ensure you don’t miss payment, set up a reminder in your calendar and where possible set up automatic premium payments to pay for your IUL policy.

How long does it take to open an IUL account?

The process of opening an IUL insurance account can take several weeks, but the timeline can vary. Here's a general breakdown of the factors involved:

  • Initial Consultation & Application: Meeting with your insurance agent, discussing your needs, and completing the application can take a few days to a week.
  • Underwriting: The insurance company assesses your health and risk profile. This typically takes 2-4 weeks and might include a medical exam and review of your health records.
  • Policy Approval & Setup: Once approved, the insurer will issue the policy and set up your indexed universal life insurance account. This can usually be done within a week.

Important Notes:

  • Complexity: IULs can be complex. More time might be needed to compare plans and understand features.
  • Health Factors: Pre-existing conditions could lengthen the underwriting process.
  • Insurer Variation: Processing times differ between insurance companies.

Tips for Speeding Up the Process:

  • Work with an experienced life insurance agent: They can guide you efficiently.
  • Be prepared: Have the necessary documents and information ready.
  • Get ready: Your life insurance medical is important so ensure you prepare well for the exam.
  • Be responsive: Answer insurer inquiries promptly.

Monitor and Manage Your Policy

Owning an IUL isn't a set-it-and-forget-it investment. Regularly monitor your policy, especially its cash value growth and the performance of the underlying investment strategies. Review your policy annually with your life insurance agent to make informed adjustments and maximise your policy's features and its potential cash value growth.

Summary

Opening an Indexed Universal Life Insurance (IUL) account involves several important steps. These include carefully considering your life insurance needs, researching providers and understanding your investment options.

Remember, as you open your IUL account, careful planning and expert guidance are essential to ensure you make the best choices for the coverage, investment strategies, and premium payment method that align with your financial plan.

Are you ready to take control of your financial future with the benefits of an IUL?  Contact a Capital for Life insurance specialist today for personalised assistance. We'll guide you through the account opening process, answer your questions, and help you secure an IUL policy that maximises the financial protection and growth potential you want and deserve.

Frequently Asked Questions (FAQs)

How much money do you need to start an IUL policy?

The minimum amount of money you need to start an IUL life insurance policy varies between insurers and depends on your chosen coverage amount and premium payment method. Annual payments for an international indexed universal life policy start at around US$15,000 a year and rise to $100,000 or more in premiums. It's best to contact an insurance agent for an IUL illustration with your details. It will clearly show you how much you will need to invest to get the cover you need.

Can I get an IUL if I have pre-existing health conditions?

Yes, you can get index universal life insurance with existing medical conditions, but it may cost more, depending on the health issues you have. Insurance companies carefully assess your health history during the underwriting process. Factors like the severity of your condition(s), what treatment you have taken and your overall health profile will affect your eligibility and premium rates.

What are the age requirements to open an IUL?

Most universal life policies and insurers have minimum and maximum age limits for index universal life insurance policies. Typical ranges are between 18 and 80, but this can vary across insurers. A health assessment (underwriting) is a standard part of the IUL application process for all ages. Applicants will also need to demonstrate they can afford the IUl premiums and that they have an insurable interest.

Can I change my premium payments or coverage amount later with an IUL policy?

Yes, IULs offer premium payment flexibility and adjustments to life cover can be made. As long as your policy's cash value remains positive, you can usually decrease or delay premium payments without affecting the life cover. The death benefit can also be adjusted, usually only downwards, subject to certain limits. Specific terms and conditions vary by insurer and policy, so reviewing your policy details is critical.

What documents must I provide when applying for an IUL?

Be prepared to provide the following documentation when applying for an IUL policy:

  • Identification: Government-issued photo ID (driver's license, passport).
  • Proof of Income: Pay slips, tax returns, or bank statements to verify financial information.
  • Medical Records: Your insurer may request medical records if you have pre-existing health conditions.
  • Medical Exam: Most IUL policies require a medical exam that includes blood tests, echocardiogram readings, treadmill and potentially other tests like a chest x-ray for smokers.
  • Beneficiary Information: Details of the person(s) designated to receive the death benefit.
  • Signed Application: The completed IUL application form with your personal and financial information.

How do I get an IUL quote?

The best way to get an accurate IUL quote is to work with a licensed insurance agent specialising in IULs. They can assess your needs, compare policies from multiple insurers, and explain the details clearly. Be prepared to share your age, health status, desired death benefit and investment preferences for accurate quotes.

Disclaimer

This article is authored by Carlton Crabbe, Chief Executive Officer of Capital for Life, a specialist IUL insurance broker. The information provided in this article is for educational and informational purposes only and should not be construed as financial, tax, or investment advice. While the author possesses expertise in the subject matter, readers are advised to consult with a qualified financial advisor specialising in key person life insurance before making any investment decisions or purchasing any life insurance products.

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