Safe Financial Growth
Index Universal Life is most commonly characterized by cash crediting when S&P 500 growth is positive and cash values remaining static when the S&P 500 loses value. This strategy is called indexing and helps to make sure your cash is there when you need it most.
What is an IUL?
Here we explain the difference in Indexed Universal Life and Whole Life policies, and why IULs are able to outperform Whole Life. Details matter!
Advantages of IULs
Tax Free
Cash Available Before 59 1/2
Cash Available Before 59 1/2
As long as the cash accumulation test and the guideline premium requirement are followed, index universal life can provide tax free cash to the policy owner during their lifetime.
Cash Available Before 59 1/2
Cash Available Before 59 1/2
Cash Available Before 59 1/2
Tax advantaged vehicles like Roth IRAs and Roth 401ks cannot be touched before age 59 1/2 without penalty. IULs allow for the disbursal of cash whenever the policy has been funded properly.
No Contribution Limits
Cash Available Before 59 1/2
No Contribution Limits
Roth IRAs and Roth 401Ks have contribution limits that stifle growth. IULs can be funded with whatever amount you deem appropriate, so long as the cash accumulation test and premium requirements are met.
How do IULs grow?
Options
An options contract is an agreement between two parties to buy or sell an underlying asset, usually a stock, at an agreed upon price and date. Because options allow equities to be purchased below market value, options can make money even when the market is down. That is one reason why IULs are able to offer a zero-loss (or better!) floor on their policies.
Premiums
A fraction of your premiums are used to purchase options but are not directly purchasing equities or assets. When the option is exercised and the company issuing the policy makes money, your account is credited with cash made from purchasing the equities. Your premiums are NEVER invested in the stock market.
Disbursements
As your policy's cash value and death benefit grow, you will be able to take cash disbursements in the form of low interest loans. Like Roth disbursements, loans are classified by the IRS as tax free. As your cash value compounds, it overtakes cost of the loans (so long as disbursals are not exorbitant) and you never have to worry about tax implications. Upon your passing, the death benefit and cash value pay off the loans and gives the remainder to your beneficiaries TAX FREE.
Tax Free
The cash value accumulation test ensures that the cash value of a life insurance policy does not exceed the amount necessary to fund future death benefits. This means the policy must meet certain actuarial standards to qualify as life insurance for tax purposes. If the cash value grows too quickly compared to the death benefit, the policy could be disqualified and lose its tax advantages. Improperly designed ratios in IULs can create a MEC, which will lose some tax favorability.
The guideline premium requirement ensures that the premiums paid into a life insurance policy do not exceed certain limits set by law. The guideline premium limitation includes both the guideline single premium and the guideline level premium.
Cash Before 59 1/2
It's your money. You take it when you need it. Roth funds are important for people to maintain and encourages contributing over a long time horizon. If you have a Roth, keep it and continue contributing! But also consider the advantages of accessing IUL cash at a moment's notice.
No Contribution Limits
A well-balanced portfolio is key. Roth IRAs and Roth 401Ks are important to fund completely, but even they have limits and don't offer the security of a well-designed IUL. Consider the advantages of making a safe and decent return on contributions that can far exceed Roth limits.
While managed funds in stock portfolios can see massive upside if stocks are chosen properly, commission fees are one of the biggest inhibitors of growth. According to Nerdwallet, 1% brokerage fees in managed funds can take approximately $100k from an account valued at approximately $500k.
The fees associated with a properly designed IUL are far less and clearly laid out, which will make your contributions grow much more over the life of the policy.
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