Life happens. Fast. One day you are making decisions on a career after high school and the next you are discussing a budget for the quickly approaching retirement years. Between a mortgage, a couple vehicles, and raising children, life insurance can easily be pushed to the side in order to spend money elsewhere. Before you know what happens, the big 40 comes around and it is time to look at things a little more closely. Several people even contemplate if there is even any point in life insurance at this age, especially indexed UL at 40. People often assume that by this time, a really big investment would have to be made in order to receive any return.
Not the case.
Indexed UL at 40 years of age might be a great financial decision
So let’s think of indexed universal life insurance as a savings vehicle.
We want to buy just a little bit of life insurance but pay the maximum premium allowed by the IRS guideline 7702.
With an indexed UL policy, the premium is flexible. These permanent life insurance policies contain both investment and insurance components. The premiums are deposited in a cash account inside the policy and this account will increase by a crediting method which is set according to the terms of the policy.
This method is chosen by the policy owner and the interest is linked to one of the stock market indices such as the S&P 500, DOW JONES or NASDAQ.
You can earn interest up to a cap of currently around 12% – 14%.
You can’t lose money when the market has a negative return so your worst case return for a bad year is 0%. Remember that this is life insurance so your cash value would be reduced by the amount of the policy charges. Keep in mind that these charges are kept to a minimum because we are buying very little life insurance.
These policies have historically grown more than 7% per year.
Indexed UL at 40 –
If a 40-year-old male decided to invest $416.00 a month ($5,000 per year), by age 65 the cash value of his policy would equal $313,330. With that amount of cash accumulation, he could choose to receive a tax-free income of $29,984 per year. We are able to buy as little as $121,625 of life insurance. This keeps the policy cost down and allows us to grow more cash in our policy.
Males: $5,000 per year for 24 years produces a tax-free income of $29,984 per year from age 65 – 100.
If a 40-year-old female were to invest the same $416 a month, she could receive $30,027 tax-free income at age 65. The cash value of her policy would be $308,466 at age 65 and her beginning death benefit would be only $169,006. I know $416 per month sounds like a lot for $169,000 of life insurance benefit, but keep in mind that we are only using this policy as a cash accumulation tax-free retirement vehicle.
Females: $5000 per year for 24 years produces a tax-free income of $30,027 per year from age 65 – 100.
As mentioned above, Indexed UL policies will have charges. You can count on:
- COI – cost of insurance charges, which we are keeping to a minimum
- Policy Fee – usually around $80 to $100 per year
- Unit Expense Charges – these vary by issue age, gender, underwriting class and typically go away after 10 years
- Premium load – not all policies have premium loads but the ones that do will usually go away after 10 years.
All investments have charges of some kind.
Indexed universal life can be a great way to help save for retirement. Every case is different so the best way to determine if an indexed ul policy is right for you is to get a personalized quote. Your saving ability may be more or less than the 40-year-old examples above so it is best to have several illustrations run that will give you a range of options that are available to you.
We can do a screen share presentation that will help you understand how your policy can perform based on how much you would like to contribute, your age, and your future retirement outlook.
You can complete the form to the left of this page for a customized quote or give us a call at 1-800-712-8519.
The sooner you start saving in an indexed universal life policy, the more you can expect to receive in tax-free income. If you start your indexed UL in your 20’s, you can expect to receive much more than if you buy indexed ul at 35 or indexed ul at 50.
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