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Indexed Universal Life Insurance (IUL) policies are designed to provide a death benefit to beneficiaries while also allowing policyholders to accumulate cash value over time. This cash value can be accessed through policy loans and withdrawals, which can have a significant impact on the policy’s overall value.
Policy loans allow policyholders to borrow money from their IUL policy’s cash value, with the policy itself serving as collateral. These loans typically have lower interest rates than traditional loans, but any outstanding loan balance will reduce the policy’s cash value and death benefit. If the policyholder is unable to repay the loan, the policy may lapse, resulting in the loss of coverage and potential tax consequences.
Withdrawals from an IUL policy can also impact its overall value. Withdrawals are treated as a reduction of the policy’s cash value, and any withdrawal amount that exceeds the total amount of premiums paid into the policy is subject to income tax. Additionally, policyholders may incur surrender charges if they make a withdrawal during the policy’s surrender charge period, which is typically the first few years of the policy.
It’s important to note that policy loans and withdrawals can have a compounding effect on the policy’s value over time. Any outstanding loan balance or withdrawal amount not repaid can accrue interest and reduce the policy’s overall growth potential.
For more information, reach out to us at Seventi102Life today! We will provide you with the necessary support and guidance to set up a policy and make the most of it.