Introduction
IUL (Indexed universal life) gets a bad wrap, as a “bad” investment because of the “bad” financial advisors and insurance agents. Yes, I said it! Incompetent financial advisors and insurance agents just want a sale, don’t specialize in a specific audience or product, and don’t take the time to learn to master IUL structure, therefore poorly structuring an IUL policy making it a bad investment. The purpose of IUL should be maximum accumulation (increasing cash value to eventually use for child’s college/expense fund, retirement, take out loans to start business, down payment of house, etc), so when I say poorly structured that means the policy is not structured for maximum accumulation purposes which defeats the purpose. So how will I know if my existing IUL policy is poorly structured? Feel free to contact me and I would be happy to review your current policy and set up a new properly structured IUL for you if necessary, but to answer your question without reviewing anything-one way you can tell is if on your policy illustration or policy document/report illustrates cash value in Year 1, 2, 3, 4, and/or 5 that is a sign that your existing IUL policy is not properly structured for maximum accumulation.
So, to answer the question, is IUL a bad investment? No it’s not, your financial advisor is. So, what makes me competent? I’m a specialist; I specialize in IUL products for working mothers. In this blog post, I will share 10 benefits of Indexed Universal Life (IUL).
What is an IUL?
IUL defined: IUL stands for Indexed Universal Life. IUL is a type of whole life insurance that has a death benefit and cash accumulation linked to stock market indexes.
Indexed Cash Accumulation
Indexed cash accumulation refers to how cash value accumulates within an IUL based on financial market growth (ex: S&P 500). As long as the economy grows as indicated by the market indexes associated with your IUL, then the cash value within your IUL will generally grow. Ok Kim, that;s music to my ears to hear that my money will grow when the market grows, but what happens when the market crashes? Let’s talk about that now in the protection of the principal section.
Protection of Principal
Within an IUL, your principal is protected. Principal is defined as the amount of cash value recognized within the cash account of the IUL. The cash value benefits from the upside of the market but it won’t decrease due to market losses (negative year). If a negative year were to occur, the IUL cash account will be credited with zero, therefore your principal won’t be reduced. Doesn’t that sound amazing?
Earnings Locked-In
In an IUL policy, the earnings within the cash value account is locked in, meaning for every year there is interest credited to your principal, those gains are locked in. In addition, those gains are added to your principal permanently! Here is an equation of understanding earning locked in for my visual learners.
My principal amount at the beginning of the year + credited gains from this year (if any)= my New principal amount for next year.
Personally, one thing I dislike is if someone gives me something and tries to take it back for whatever reason, the nerve! But with earnings locked in within an IUL, nothing or no one can take what has already been given to you.
Tax- Free Growth
Cash accumulates within an IUL on a tax free basis, meaning the cash accumulates without you having to pay taxes on the growth of the account.
Tax- Free Access
In an IUL account, you’re able to withdraw money from the cash value tax free, meaning not paying any federal taxes on the money withdrawn. However, depending on the IUL insurance carrier, there may be a loan fee associated, so check with your financial advisor or IUL broker. Can you say IUL grows tax free to be able to access tax free? Yes to that!
Potential Tax-Free Income Stream
More income and it’s tax free? Wait tell me more. From experience, I’ve personally encountered persons over the age of 65 working full time or part time employees in the workplace because–their words “I need the money.” Americans are retiring, yet still having to return to work because their retirement income isn’t enough to survive. I’m sure you feel the same way I do, when it’s time for retirement I plan to do just that and if I want to work it will be because I want to NOT because of having to. Well, an indexed universal life policy can provide a supplemental tax free retirement income stream for many years or life for you and your children. You get to set the number of years and at what age you wish to receive the additional income stream AND the income is tax-free meaning, you do not pay any state or federal taxes upon payout. The annual income amount depends on factors such as contribution amounts, age, and length of time (in years), so talk with a trusted IUL broker to design a retirement plan tailored for you and/or your family.
Tax-Free Death Benefit
Although, I suggest securing an IUL for accumulation purposes therefore get a term life insurance policy for death benefit; an IUL offers added protection with a tax free death benefit. The death benefit serves as a financial protection to help mitigate the financial burdens if you were to passed away or deemed chronically ill or hurt
In other words, in addition to the cash value accumulation, if you were to pass away or chronically ill or hurt deemed by physician and as outlined in your policy, an IUL also offers you and/or your beneficiaries (persons you designate to receive money if you passed away) money (death benefit) paid out to them or you depending on the situation. The money can be used for various reasons such as mortgage, lifestyle, education, etc. AND is tax-free, meaning your beneficiaries or you do not pay any state or federal taxes upon payout.
Living Benefits
Ok, so throughout this post, you probably were like how do I get life insurance money paid out to me if I’m alive? Another benefit of IULs is the tax-free living benefits option. Your insurance company will allow you to tap into the death benefit money of your IUL while you are alive if specific (outlined by your insurance company) health conditions arise as critical, chronic, or terminal illness. Typically, health conditions that are outlined in your policy and diagnosed by a physician and/or unable to perform 2 out of 6 Activities of Daily Living (ADLs) which include bathing, dressing, eating, transferring, toileting, and continence could qualify you to use money from the death benefit for whatever reason one may choose. If you have a $500,000 death benefit, and due to your chronic, critical or terminal illness or accident you end up using $100,000, then your $500,000 original death benefit amount would reduce to $400,000 ($500,000-100,000=$400,000).
Flexibility, Simplicity, and Scalability
Finally, an indexed universal life policy (IUL) is flexible, simple, and scalable.
Flexible in terms of you are not bound to sticking to how you start the policy. Throughout the time of your policy, you are able to change contribution amounts, contribution time frames, policy owner, named beneficiaries, etc without having to create a new policy.
Simple in terms of it can truly be a set it and leave it type of investment strategy. It can be simple to understand and implement as part of your financial investment. You have the benefits of all mentioned above with one plan.
Scalability in terms of you can contribute as little or as much as you want depending on your income level and life circumstances which will help you accelerate your financial goals or slow them down during difficult times and pick it back up whenever life allows.
Let’s Engage
Which 2 IUL features interest you the most?
Conclusion:
Let us pray: Lord thank you for bringing this amazing mother on this blog post. Starting an investment journey may feel overwhelming, but I pray that you give her clarity as she finishes reading this post and in her decision making for her and her family. I wish her the best in all her decision making and future financial endeavours filled with prosperity and abundance. In Jesus name, Amen!
Contact Information That May Interest You
I would love to continue our conversation. If you’re up to it, I invite you to chat with me further and let’s talk about financial planning options for you and your family.
Booking link: https://calendly.com/speakgenwealth/45min
My name is “Kim”berly Jones, a financial advisor for working mothers who specializes in indexed universal life, term life insurance, and annuities. Learn more about my brand’s mission, vision, and values at: www.speakgenwealth.com
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