Reasons Why IUL is the Way to Go
There are many reasons to consider saying ‘Yes’ to purchasing an IUL policy. These can include advantages that go far beyond the death benefit. For example, IUL policies provide numerous ways to utilize the cash value in tax-advantaged ways. The rate of return achieved with the best IUL policies can be significant without risking principal.
While both traditional universal life and indexed universal life insurance offer tax-deferred growth of policy cash value, how interest is credited to an IUL policy differs – and because of that, IULs provide for higher potential returns.
IUL policies link their return to an underlying market index, such as the S&P 500. So, when this index performs well in a given year, the cash value should increase. However, these policies also offer principal protection by simply crediting a 0% return when the underlying index performs poorly.
The tax-deferred nature of the cash value allows funds to grow and compound exponentially over time, as no tax is due on these funds unless or until they are withdrawn. And, by using simple strategies for accessing the cash value of the policy through loans or withdrawals, you could even be able to receive the money tax-free.
Utilizing certain IRS provisions that allow for Tax-Free Withdrawals from an IUL gives owners the ability to access funds from the policy for needs such as supplementing retirement income, paying for a child or grandchild’s college education, or even paying off high-interest debts in a very favorable manner.
Putting money into an IUL policy also offers lots of flexibility, as you can decide how much of your premium to allocate to the policy’s death benefit and how much to allocate to the cash value (within certain IRS guidelines).
Plus, because there are no annual maximum contribution levels on IUL, you can continue making deposits – and receiving the tax-advantaged growth – even after you have “maxed out” your 401(k) and traditional IRA each year.
On top of that, unlike a 401(k) or traditional IRA, there is no requirement for taking annual distributions when you reach age 70 ½. So, the money in your IUL policy can continue to grow and compound over time, only to be accessed when you decide to do so.
All the while, your loved ones will be protected by the IUL policy’s death benefit – which is received free of income taxes by your beneficiary (or beneficiaries) at the time of death. As long as you keep the IUL policy in force, this permanent death benefit will remain in effect, providing you and those you care about with peace of mind knowing the IUL will lessen their financial hardship in the event of your death.
Some IUL policies will also give you the option to access some or all of the death benefit through optional riders. For instance, if diagnosed with a terminal illness or in need of care in a skilled nursing facility, you may be able to obtain these “living benefits” from your IUL policy.
If you are considering Indexed Universal Life Insurance, please weigh all of the IUL pros and cons against your individual circumstance and then make the best decision for you and your loved ones. Talk with your financial advisor or a knowledgeable IUL expert and make the best decision for you. IUL may not be for everyone – but Indexed Universal Life is an absolutely great solution for certain people.
