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Jan 18, 20245 min

Navigating Market Waves: A Tale of Financial Success with an IUL Shield

IUL is a powerful life insurance product that offers both death benefit protection and the potential for long term wealth accumulation through a tax advantaged savings account. One thing that makes IUL life insurance special is that it offers policy credits based on the performance of a market index, but with full protection from market losses.

Meet Emily: A Pioneer

Emily is a successful professional who wants to protect her family and build wealth for the future. IUL is an ideal product for Emily:

  • The death benefit provides protection for her family
  • The account value allows Emily to build wealth that she can access for any reason in the future
  • The indexed credits offer significant growth potential, while protecting against market volatility.

With protection, flexibility, and growth potential, Emily can feel confident that IUL is a financially savvy way to put her money to work.

Setting the Stage: Market Overview

Emily’s IUL receives credits based on the 1-year performance of the S&P 500, a market index that tracks the performance of the 500 largest companies in the US, such as Apple, Microsoft, Nike, and Starbucks.

On December 1, 2022 the S&P 500 Index was trading at 4,076. Emily’s will receive policy credits based on the price of the index 1-year later. If the index is greater than 4,076, she will receive a credit to her account value. If the value is less than 4,076, her account value is fully protected. She participates in market upside, while being protected from losses.  

The Rollercoaster Ride: Tracking Market Ups and Downs

While the S&P 500 has grown over the long run, the index value grows and shrinks based on the performance of the component companies. Some days the index is up, some days it is down. In a typical investment account, investors are exposed to the gains at losses from this volatility, meaning their investments may lose value.

In the one year period from December 1, 2022 to November 30, 2023, the S&P 500 value ranged from as high as 4,607 to as low as 3,764. Bad market timing can lead investors exposed to substantial losses.

The 0% Floor in Action: A Shield Against Losses

Emily’s IUL provides a shield against market losses. While direct market investments are fully exposed to losses - and sometimes substantial losses such as in 2001, 2008, or 2020 - IUL policy credits are floored at 0%. 

For example, one month after Emily purchased her policy, the S&P 500 was down 6%. For typical investments this would mean lower account balance. For Emily, her IUL does not lose value as a result of market fluctuations. The IUL provides a shield against market losses.

Adjusting Strategies: Mid-Year Evaluation

Many IUL products offer multiple indexed strategies and even fixed crediting options. The different index strategies may offer various time periods for determining credits (such as 1-year or 2-years), various crediting caps and floors, credit multipliers, or different underlying indexes. Emily can select one or multiple strategies and change her choice in the future.

Future premium payments can be allocated to different accounts. Existing balances can be re-allocated. Emily is in control. And best of all, unlike traditional investments there is no tax consequences to re-balancing. IUL allocations can be rebalanced without paying any taxes.

With IUL, Emily can feel confident that she has flexibility and she is in control of her destiny.

Pro Tip: If Emily chooses to allocate her existing account value out of an indexed account before it matures, she will forfeit the potential credit she could earn at the end of the year. It can be smartest to wait to reallocate after segment maturity to maximize credits.

Year-End Reflection: A Success Story Unfolds

IUL credits are typically paid based on 1-year performance. So, about 1 year later Emily will receive her first index credit. 

On November 30, 2023, one year after Emily started her IUL, the S&P 500 has grown by 12%. This growth rate is used to determine Emily’s credit. The credit may be adjusted by caps or multipliers, for instance a 10% cap is common, in which case Emily would receive a 10% credit. 

Emily’s IUL has allowed her to grow her wealth, while protecting her from downside risk. Best of all, unlike a traditional investment, growth inside an IUL policy is generally tax-free.

Conclusion: Unveiling the Power of IUL

Emily knew IUL was right for her due to the protection it offered her family and the possibility to help her accumulate wealth. Throughout the year, Emily’s policy protected her from the financial volatility of the market - including a 6% drop in the first month. And then delivered tax-advantaged growth with a 10% credit at the end of her first year. All the while, her policy provided death benefit protection to keep her family secure. With IUL, Emily is in control.

Securing Your Financial Future

IUL is a powerful financial tool. Learn more about IUL from our Education Library.

You can also speak with one of Amplify’s licensed life insurance specialists to start benefiting from IUL today.

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