Indexed universal life is a permanent life insurance policy with a unique cash value accumulation structure. The policy lasts for your entire lifetime, unlike term. However, many people take advantage of it for the cash value growth benefits, in addition to the death benefit.

With the recent volatility in the stock market, clients are looking at alternative places to grow their money without risk.

The retirement vehicle of choice for many is the 401(k). However, a 401(k) has market risk, postpones taxes to the future, and does not allow you to use your own money without penalties and taxes until you are age 59.5. For most people, this may not be the ideal retirement solution.

Indexed universal life insurance works similarly to universal life. You pay a premium in exchange for lifelong coverage and can use the cash value account to build an investment. Part of your premium payment goes toward the cost of insurance (covering your death benefit) and other fees, then the rest is added to your cash account.

As with universal life, IUL premiums are adjustable. If you ever decide to skip a premium payment or underpay, that money can be taken directly from the account. You may also be able to adjust the death benefit amount if your needs change. However, you may be asked to complete a medical exam if you apply to increase your coverage.  Insurance companies created IULs to give you the tax advantages of growing money in a life insurance policy, plus the best features of growth without the potential for loss.

The cash value account earns money based on the performance of a selected stock index. A stock index, such as the S&P 500 or Dow Jones Industrial Average, is a way to track a group of stocks. Insurance companies have one or more of these indices you can choose from. The insurer pays interest to policyholders based on the index’s performance — as value goes up, the account earns interest. If the index drops, the account earns less or nothing.

The amount you can earn is subject to “floors” and “caps” to help minimize large swings in interest payments. The floor is the lowest your account rate can go and is usually guaranteed for the life of the policy but is often set at 0%. This means the account won’t suffer losses if the market crashes.

The cap is the highest interest rate the account can earn, so if the market is up more than the cap, you’ll get credited only for the cap amount. Unlike the floor, your insurer can change the cap while the policy is in force.

IUL policies can be a very powerful tool for retirement by providing tax-free lifetime income. However, it is vital to make sure you follow these very simple rules to ensure the proper structure to create a wealth-building protection machine.

Living Benefits are automatically built into most IULs. This gives you the ability to accelerate your death benefit while you’re still living if you suffer a heart attack, cancer diagnosis, stroke, or any other critical, chronic, or terminal illness. Living Benefits safeguard your family from medical bankruptcy following a critical illness. This is the cause of 50% of the bankruptcies in the U.S. every year.

Covered With Living Benefits

• Financial advisors will not typically recommend IUL policies because they may not be allowed to use life insurance to grow their clients’ assets. They may want you to keep your money in their stock and bond portfolio. Here are the three typical reasons they will not tell you.
•  Index crediting is based on interest earned which is automatically added to the value of the account it eliminates the need for advisors. If they can’t make money, they typically will not make the recommendation because sadly it’s not in their best interest to do so.
• Advisors are mainly selected for sales skills, not financial knowledge because retail investment advisors do not do their own analysis in any case. They are told what to recommend by the real decision-makers. In many cases in addition to charging fees, they will recommend investments provide them further profits from even if it’s not in your best interest.
• Advisors want to continue earning their 1% (or more) fee year after year. They will make more money over time by earning their annual fee rather than a life insurance commission.
• As a formal broker and financial advisor, I left the industry due to these types of unethical practices.

As a consumer, you have to be careful. There are over 150 different IULs available and they are not built the same. The example below is from a real client we helped with a no-obligation retirement assessment. We discovered she was sold an IUL that was incorrectly structured.

Bad news – She started the policy over a year ago.

Good News – Watch to find out more!

We look at how best to prepare our clients for success.  We are product agnostic meaning we are not associated with a particular company or product.  We care about helping our clients have a successful retirement.

Our goal, plain and simple, is to help our clients best prepare for retirement. If a life insurance policy is an important asset for market and tax protection, we won’t hesitate to recommend one.

If you absolutely don’t want a life insurance policy, no problem. We work with all financial vehicles, and our sole purpose is to work with you to best help your situation.

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