Core Mechanics of IUL

At Franklin Financial and Retirement, we provide clear, reliable guidance for your insurance and retirement planning. One of the most powerful tools we use is Indexed Universal Life Insurance (IUL). This page explains how IUL works, what makes it unique, and why it plays a key role in helping you Eliminate Risk, Fees, and Taxes (ERFT).

What Is Indexed Universal Life Insurance (IUL)?

An Indexed Universal Life (IUL) policy is a type of permanent life insurance. It includes a death benefit and a cash value component. The cash value grows based on a market index, such as the S&P 500. Your money is not invested directly in the market. This means your cash value can grow when the market rises. But it won’t lose value if the market drops.

At Franklin Financial, we use IULs mainly for building tax-advantaged cash value. Life insurance is just a byproduct.

How IUL Premiums Work

Every time you make a premium payment, it is split into three parts:

Cost of Insurance (COI): This pays for the life insurance coverage. We structure the policy to keep this cost as low as legally allowed. This allows more of your money to go toward building cash value.
Fees and Administrative Costs: These are basic charges to maintain the policy.
Cash Value Accumulation: The remaining funds go into a cash value account. This account earns interest based on a market index.

How the Indexing Feature Works

The cash value grows based on market performance. But you are never exposed to actual market losses. Here's how it works:

Point-to-Point Crediting: Interest is based on how the index performs from one date to another, like from one policy anniversary to the next.
Annual Reset: Your gains are locked in at the end of each year. If the market drops the next year, you keep your past gains.
Cap Rate: This is the maximum interest you can earn in one year. For example, if the cap is 10% and the market grows 15%, you still receive only 10%.
Floor: Most policies include a 0% floor. If the market goes down, your policy earns nothing that year, but you don’t lose money.
Participation Rate: This tells you how much of the market gain you get. If the index grows 10% and your participation rate is 80%, you get 8% credited to your policy.
Spread: Some policies subtract a small percentage from the index gain. For example, if the market earns 12% and the spread is 3%, you receive 9%.

This system allows you to benefit from growth while protecting your savings from loss.

Building Wealth Over Time

IULs are built for long-term financial growth. Your cash value:

Earns interest annually, based on the index.
Does not lose value when the market goes down.
Grows tax-deferred, meaning you don't pay taxes while it builds.

Best of all, you can use your cash value while keeping your policy active.

Accessing Your Money Tax-Free

One major benefit of IUL is tax-free access to your money. You can take loans from the policy’s cash value at any time. These loans:

Do not count as taxable income
Never have to be repaid
They are simply deducted from the death benefit if unpaid

This makes IUL an excellent source of tax-free retirement income.

Our ERFT Strategy: Eliminate Risk, Fees, and Taxes

At Franklin Financial, we focus on cash accumulation, not just life insurance. That’s why we follow our ERFT method:

Eliminate Risk: Your principal is protected. Even if the market goes down, your policy won’t lose value.
Eliminate Fees: We keep your insurance costs low. This means more of your money is used to grow your cash value.
Eliminate Taxes: Your money grows tax-deferred. You can access it tax-free through loans.

We set the death benefit at the legal minimum. This helps you get the most value out of your policy. Insurance is just the tool; we use it to help you build wealth.

Is IUL Right for You?

If you want to:

Grow your money safely
Avoid stock market losses
Access retirement income tax-free
Build a flexible financial tool without contribution limits

…then Indexed Universal Life Insurance might be the right solution for you.

Why Work With Franklin Financial?

We know insurance decisions can be confusing. That’s why we take a personal, commonsense approach. We:

Ask the right questions
Listen carefully to your goals
Build a plan that fits your lifestyle
Help you find the right policy, without pressure

Our team has helped hundreds of people make confident insurance choices. Now, we’re ready to help you.

Let’s build your future with clarity, safety, and peace of mind.

Contact Franklin Financial and Retirement today to learn more about how IUL can support your retirement and wealth-building goals.