By Joe R. Maldonado

Shopping for a life insurance policy is overwhelming, so knowing the equity indexed universal life insurance pros and cons will help you make a sound decision. These policies havent been around too long, but they offer the highlights from the fixed whole life policies and the variable life insurance. This type of life insurance is permanent, and as long as you keep up on your payments there is a permanent death benefit. A great benefit is the reserve fund. This can be used later in life (when the premiums are likely to be higher) to help offset payments.

How does Equity Indexed Universal Life Insurance (EIUL) Work?

Every time you pay your premium it gets invested by the insurance company into their general account. Then they take the money from their general account and invest it in stocks with options. You would get something like a certificate of deposit at this time. If all goes well, you get a part of the profits. Even if the stocks fall, you can still count on the minimum credit rating.

What about Taxes?

When it comes to taxes, most of the time Congress looks favorably on life insurance policies. You dont get to deduct your paid premiums, but the growth on the cash value of your policy will remain tax free. Also, as long as your policy is open you can have access to the cash value of your policy any time you wish, tax free. If you are below age 59 you will not get the 10% penalty which is usually placed on any withdrawal profits. Furthermore, if your policy is in effect you will not have to deal with capital gains tax or even income tax on the withdrawal proceeds. People who arent able to receive other types of retirement accounts or benefits love EIUL policies.

The Pros:

Great tax incentives

Cash value may be used without restrictions

In the event of the policyholders death, the beneficiary receives a tax-free cash death benefit

The cash value will usually retain protection by creditors (this depends upon the state in which you live)

Cash value does not count when your family is attempting to receive any type of financial aid

You would be guaranteed a minimum credit rating

The Cons:

Compared to other savings policies, equity indexed universal life insurance policies have a bit of a high fee base. You pay commissions upfront, so you may be paying for several years before you get to the point where you are breaking even as far as the cash value matching what youve paid.

You have to really put a lot of funds into these.

If you dont put enough funds in, you wont have enough cash value to keep your policy going in the later years of your life. Then you will end up having to figure out if you want to let the policy go, or pay the premiums to keep it going.

You must weigh out the equity indexed universal life insurance pros and cons to determine whether this will be the best choice for you and your family as far as the long term.

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