Indexed Universal Life Insurance: 12 Undeniable Advantages
These are a few of the advantages of an indexed universal life policy. The policy is extremely customizable. Contact us and we will guide you to the best policy design for your situation.
- Life Insurance
- Market Risk Protection
- Potential for Double-Digit Gains
- Tax-Deferred Growth
- Tax-Free Distributions
- High Contributions
- Liquidity, Use, and Control
- Guaranteed Loan Options
- Unstructured Loan Payments
- Uninterrupted Compound Interest Accumulation
- Creditor Protection
- Extra Living Benefits
1 – Life Insurance
This seems like an obvious one, but most wealth-building vehicles don’t include life insurance. This way, you can pass on wealth to your children (or whomever) tax-free.
2 – Market Risk Protection
When the market crashes, most qualified retirement plans like IRAs and 401(k)s crash with it. Even minor downturns can cause stress, particularly in the years immediately before and after you retire.
An IUL has a 0% floor. Your cash value will never lose money. Market corrections, crashes, and downturns don’t cause stress because your principal remains intact. The gains from all the previous years stay locked in too.
3 – Potential for Double-Digit Gains
Conservative investments like bonds offer little in the way of growth in exchange for their relative safety. IULs have caps of 12-14%. Most indices have averaged between 6% and 10% over the last 25 years.
An IUL couples the safety of conservative wealth building with the growth of moderately aggressive strategies.
4 – Tax-Deferred Growth
Your cash value grows tax-deferred in the policy.
5 – Tax-Free Distributions
Taking out a loan from the policy is entirely tax-free. Loans enable a secure, tax-free income stream during your retirement. You can take loans for any reason: higher-return investments, college funding, buying a house, starting a business, or even vacations.
6 – High Contributions
Unlike IRA contribution limits or logical limits such as only contributing up to your employer match on a 401(k), you can contribute as much to your IUL as you choose. Government regulations set premium limits based on the death benefit. The higher your income, the higher the death benefit you can get.
7 – Liquidity, Use, and Control
You don’t have to wait until 59.5 to start pulling out money from your IUL. Some companies don’t allow you to touch the cash value for the first year or two, but after that, you have complete control over liquid assets.
8 – Guaranteed Loan Options
As long as you have enough cash inside the policy, you can borrow from it whenever you want. There aren’t any applications, underwriting, or credit checks. They don’t ask whether you’re employed or why you want to borrow the money. It’s all yours.
9 – Unstructured Loan Payments
When you choose to borrow money from your IUL, you decide the terms of repayment – if you want to repay it at all. The only thing that happens if you don’t is the insurance company will deduct the amount you owe from the death benefit when it passes on to your heirs.
10 – Uninterrupted Compound Interest Accumulation
Even with loans against your policy, you keep earning interest on the total amount. For example, if you have $100,000 in cash value and borrow $40,000, you’re still earning compound interest on the full $100,000.
11 – Creditor Protection
This perk will depend on your state. Many states will not allow creditors to come after the money in a life insurance contract.
12 – Extra Living Benefits
Many companies allow you to add living benefits to your life insurance contract. These let you take money out if diagnosed with a terminal illness or disability. Others will give you early access to your death benefit if you require long term care.
Who Would Benefit From an IUL?
An indexed universal life policy is for someone with a tax problem, not an income problem. If you’re in the top 25% of income earners in the United States ($80,000+ annual salary), your tax burden is bigger than most everyone else’s.
Looking into strategies to reduce your tax burden can dramatically increase the cash you have available. An IUL is an alternative to conservative wealth-building vehicles.
People who make too much to qualify for a Roth
Would you like to have part of your money protected from taxes, but earn too much to qualify for a Roth? In 2020, The Roth IRA contribution limit is reduced if you earn over $124,000 for singles and $196,000 if you’re married.
Even if you do qualify, the most you can save into a Roth is $6,000/year or $7,000 if you are 70 or older.
An IUL is an excellent way to save more money in a tax-free vehicle. Plus, you don’t have the stock market risk in an IUL that you have in other vehicles.
People who save above the match in their 401(k)
Does your company offer a 401(k) match? If so, save enough in your 401(k) to just get the match. If you can save more than the match, put that money into a tax-free account like an IUL.
Want to leave money to your favorite charity?
You can name a charity or nonprofit as a beneficiary on your life insurance policy. Why not maximize your gift by using life insurance?
Let’s say you are 50 years old and want to leave $100,000 to your church. Instead of writing a check for $100,000, put that money into an IUL. Your $100,000 just became a $615,000 gift!
Want to learn more?
We have a free video education course that will teach you how to build wealth with life insurance. There is a ton of misinformation online about IUL and how it works.
If you view the course, you will know more than 95% of advisors. Sign up for the course here:
How to Supercharge Your IUL with Leverage
Imagine what could happen if you had an IUL, and someone else funded 75% or more of the premiums? You would see the cash value growth on three times as much money as you were paying into the policy.
This strategy exists. It’s called premium financing. This is a strategy for people with a high net worth, but not a lot of liquid cash. The bank pays the majority of the premiums. Once enough cash builds up in the policy, the bank is paid back. Then you are left with a paid up insurance policy.
Another leverage strategy is available for those earning $100,000 per year or more.
We use leverage to buy homes and cars. Why not use leverage to get a bigger retirement?
Out of all of the advantages above, the biggest ones are the compounding growth with the market risk protection. Coupled with tax-free distributions, you’re looking at a strategy that can easily maintain your current standard of living well into retirement without worry.
How Abrams Insurance Solutions Can Help
We’re a small group of independent agents committed to helping our clients create stable financial foundations. One pillar of that foundation is life insurance.
We have experience in crafting IUL policies that match the particulars of each client’s unique financial situation. To gain all of the advantages of this strategy, the policy needs to be customized to the individual.
Give us a call today at (858) 703-6178 to get a personalized scenario of what this could look like for your future.