How Indexed Universal Life Is Proving To Be More Popular And Effective
Currently, tens of thousands of baby boomers are reaching their official retirement age every day, and that’s going to continue for many years to come. For this reason, and because so many older workers took significant financial hits during and after the financial crisis, many may be worried about their retirement income. Fortunately for the life insurance industry, a product growing in popularity might help ease some of those concerns.
For those approaching retirement, there are a number of options for building more financial security. Indexed universal life insurance might be one of the best – and also one about which they may know relatively little, according to a report from Life Health Pro. Like most life insurance products, IUL policies come with tax-deferred growth of their cash value, meaning that when their cash value grows it does so without having to pay taxes on the internal build-up. Unlike traditional life insurance policies, IUL has an additional growth potential tied to an underlying index based on market performance.
While the growth may be limited due to a cap on the amount of participation in the outside index, it still provides good upside potential. Many IUL policies further protect against the downside risk by guaranteeing the principal in the contract. Features in some contracts allow policyholders to effectively “lock-in” past gains and not lose principal when the market declines.
Meanwhile, baby boomers will have to start thinking seriously about the fact they won’t live forever. According to the report, IUL policies can provide significant death benefit protection for their loved ones. Death benefits on indexed universal life policies paid to survivors typically avoid federal income taxes, meaning that the full value of the proceeds can be applied against immediate needs of the beneficiary. Furthermore, the monies go straight to the people in need and avoid unnecessary time spent in probate proceedings.
As with any life insurance policy or retirement savings vehicle, consumers should consider whether or not such policies are a good idea. They should take into account their individual needs, the report said. Doing a little bit of research here can go a long way. Those wanting to build more financial security should know and think about their life insurance options.
The Bottom Line on IUL
Although indexed universal life insurance isn’t ideal for all clients, these policies do provide much flexibility and death benefit protection, while also offering the ability to take part in market growth. Some have even deemed IUL policies as a nice “middle ground” between fixed universal life policies and the more risky variable UL.
So, while these plans may not be viable for all, they could be a nice consideration for those who are seeking the growth potential of variable life, yet the security that comes with a fixed UL policy, in addition to an alternative way to supplement income in retirement years.
by Susan Wright – Think Advisor
