Index Universal Life Insurance

When preparing for life events and insuring yourself for worst-case scenarios it’s important to know your options. If you’re smart you have some sort of savings vehicle for your money. You may also have a retirement plan to put aside money for the future. Combine that with a life insurance plan and you’re likely feeling pretty prepared. While preparation is important, it’s also good to do your research and know your options. Let’s take a look at how an index universal life insurance plan (IUL) could help you combine your policies and earn you a greater return.

What is an IUL

An IUL has been referred to as the Swiss army Knife, known for investing and savings. This is because it is a one-stop shop for most or all of your savings and investing needs. It combines your savings account, term life insurance policy, and Roth IRA retirement account into one policy.

With an IUL you get the liquidity of a savings account because you are able to take money out at any time. An IUL allows you to take out a loan at any time, but more on that later.

Term Life Insurance

You likely have some sort of term life insurance for the worst-case scenario of paying off your debts and taking care of your family should you pass away prematurely. Since an IUL is a life insurance policy, you still get all the same death benefits as you would with any other life insurance policy.

Roth IRA

You also likely have a Roth IRA to save for retirement, either through your job or a personal broker. We all know the importance of setting money aside for retirement and the Roth IRA has been one of the most popular vessels to do so. What many don’t know is that with an IUL policy, you can earn interest on your money and save money for retirement. This money will be able to be withdrawn when you retire, or even beforehand if needed.

Long-Term Care

Another benefit of an IUL is it doubles as long-term care insurance. Long-term care facilities are able to take 100% of your estate and liquidate it to pay for your care. If you have an IUL policy, it will cover your care, allowing you to have peace of mind about this worst-case scenario.

IUL Insurance and Tax Policy

Let’s take a look at three different sections of the U.S. tax code and how it relates to IUL insurance.

72E TEFRA–

This code established that universal life insurance was indeed life insurance. Since this kind of policy works differently than whole and term life, it was necessary to define it further.

101a TAMRA–

This code laid out restrictions on life insurance. If too much premium is paid in, it can turn your policy into a modified endowment contract (MEC). This restricts how much money can be paid at a time. Some individuals may select to have a MEC which is where you would see a single premium plan with one lump sum paid at the beginning of the policy.

7702 DEFRA–

This section refers to the rules on taking money out of your life insurance policy. Since income on retirement is not considered earned, passive or portfolio, there is no tax on income earned. Life insurance is also one of the few investment vehicles that are taxed on a FIFO (first in, first out) basis.

Tax-Free component

With an IUL policy, you can utilize the rules in DEFRA to take tax-free money out of your account at any time. You do this by borrowing your own money as a loan. It’s unique because you act like your own bank. This can allow you to use the money for business purposes such as real estate investing. Something like this can really make your money go further than with other saving and borrowing vessels. The best part about it is the loan is technically not payable during your lifetime.

Conclusion

While there are many different types of life insurance policies out there, an IUL policy is unique in its features. If you are looking for a smart way to invest and save for retirement, while also taking care of your life insurance needs, an IUL may be the plan for you. It’s always important to consult with a licensed agent before making any changes to your policies. Contact us today, at Wealth Financial Services & Products at 754-202-2300 or visit our Get a Quote, email us at info@wealthfinancialservice.com and we will be happy to start a conversation on how we can best serve your needs. We’re here to help!