The IUL Advantage
With an indexed universal life insurance policy (IUL), you make premium payments like any other life insurance policy. Part of the premium pays for the cost of insurance and other fees, and the rest goes into a cash growth account. Universal life insurance was created in the late 1970’s as a vehicle for tax-deferred cash growth. With an indexed universal life policy, the growth of the cash value is TIED to the growth of an index, frequently the S&P 500, but is not actually invested IN the S&P 500. When the index goes up, the cash value in the policy goes up, up to a Cap Rate (10-14.5%). When the index goes down, the cash value in an IUL stays the same because the account has a floor rate of 0%. So, if the market goes up 10%, your cash value goes up 10%. If the market goes up 20% and you have a cap of 14%, your cash value goes up 14%. But when the market goes DOWN 15%, your account stays the same. There are never any losses due to the market. Tax-free distributions are received as policy loans. Standard loans are usually “wash loans.” The loans are secured by the cash value, which continues to grow at a fixed rate and offsets the interest charged for the loan. Variable loans are also available, where the loans are made at 4-6% interest, but that interest is offset by the indexed growth, which may be higher than the interest rate charged, allowing for extra growth due to arbitrage.
IUL’s have many advantages over other tools for saving money, especially when it comes to retirement savings. Here are the most important advantages –
1. Flexible deposits without annual limits.
2. Indexed growth – When the market goes up, your account goes up. When the market goes down, you don’t lose money.
3. You never lose money because of market losses.
4. Access to your money without income taxes or early withdrawal penalties at any age.
5. Tax-free distributions for life.
6. Living Benefits – Money to help pay costs related to chronic illness, long term care, or a terminal illness. This money comes from the death benefit, not your cash value.
7. A death benefit that pays income tax free to your family or other heirs.
8. During the most recent 30 years, the S&P 500 grew at an annualized rate of 8.39% (not including dividends). Using the index strategy in an indexed universal life insurance policy during the same period (with a cap of 14.5%) produced a rate of growth of 8.6% (after deductions for the cost of insurance).
Every IUL is custom made for my clients. Would you like to know what an IUL can do for you?
Life Insurance Agent, Santa Clarita, California