Indexed Universal Life (IUL) insurance is a financial product that offers both protection and potential for cash accumulation. In this article, we’ll walk you through the basics of indexed universal life insurance, as well as discuss strategies that utilize IUL products that could serve as a powerful component to your overall portfolio.
How Indexed Universal Life Insurance Works
An Indexed Universal Life Insurance product is a type of cash value life insurance policy that provides the opportunity to increase the accumulation value within a policy without exposing the accumulations to downside risk.
An IUL policy offers multiple one-year indexed point-to-point strategies to determine the interest to be credited to the policy as well as a fixed account option. Indexed strategies use the performance of a market, between specific time frames, to determine the interest rate applied to the policy. The interest rate applied may be subject to limitations, such as a cap or participation rate. A fixed account will earn interest at a rate periodically determined by the company. Interest is calculated using a compound method assuming a 365-day year and is credited at an annual effective interest rate. Any withdrawals or loans can reduce the amount of interest credited to the policy.
Hypothetically speaking, an IUL policy provides peace of mind during volatile markets. Policy owners can choose between several methods of having interest credits to their policy. Because indexed strategies are based upon the movement of an index, there may be concern about what happens in a year when the index decreases. Not to worry! Within an IUL policy the cash value will not go down due to a negative market return. This allows you to take advantage of the potential increases in the index while maintaining a level of protection in the event the index drops below 0%.
Indexed Universal Life Insurance (IUL) Strategies:
Would you benefit from a strategy that utilizes indexed universal life insurance? Start by asking yourself:
- “Do I Need Coverage for Life?”
An IUL would suit individuals who want insurance coverage that extends beyond a specific term. Indexed universal life insurance is a type of permanent insurance that would ensure financial protection for your loved ones throughout their lifetime.
- “Do I Value Wealth Accumulation”
Individuals who are interested in building cash value over time may use the policy as an “investment” tool to complement their overall financial strategy.
- “Do I Want Tax-Advantaged Growth”
Who doesn’t appreciate tax-deferred growth? The cash value component of an IUL makes it an attractive option for long-term savings.
- “Do I Have Estate Planning Needs?”
Those who are concerned about estate taxes and wish to leave a legacy for their beneficiaries, while minimizing tax liabilities, would benefit from an IUL policy.
- “Am I Planning for Retirement?”
An IUL policy would provide for individuals looking to supplement their retirement income with a source of funds that can be accessed through policy loans or withdrawals.
- “Am I Concerned about Future Tax Rates?”
One of the primary benefits of an IUL policy is that the cash value growth is tax deferred, and withdrawals can potentially be made tax-free.
Now that we have reviewed ways in which you could benefit from an IUL policy, let’s review a popular strategy utilizing indexed universal life insurance.
Life Insurance Retirement Plan
Most people want to retire at some point in the future. However, retirement needs differ from person to person. It is important for you to start planning early to ensure you have the income you need to support the lifestyle you want during retirement.
There are many ways to fund retirement, including: Taxable Investments. Tax-Deferred Accumulation Vehicles, Qualified Plans, and Life Insurance. At its core, a Life Insurance Retirement Plan (LIRP) is designed to provide you with both protection for your loved ones and serve as a potential source of retirement income.
A LIRP is a life insurance strategy that utilizes permanent life insurance, typically Indexed Universal Life (IUL) insurance, that is designed to maximize cash value. This is done by reducing the death benefit to the lowest level while maintaining the tax benefits of life insurance. This will create the maximum amount of tax-free income to be used during retirement.