IUL – Used For Retirement?

When you’re shopping for life insurance coverage, it can be a difficult task. There are dozens of different plans to choose between and various benefits that you’ll need to consider to ensure that you’re getting the best plan to meet your needs. Life insurance is changing every day, and the plans are being used for more than just simple life insurance coverage. The more complicated that life insurance plans get, the more questions that we get about the various kinds of policies available.

Many financial experts are touting the retirement benefits of Indexed Universal Life insurance (IUL).  More and more consumers today are finding that IUL used for retirement planning is a great idea.  IUL policies are more aggressive insurance vehicles than fixed rate Universal Life (UL) policies, but less volatile than Variable Universal Life (VUL) life insurance options.  Is IUL used for retirement?  I will say yes!

When a client pays a monthly premium of, let’s say, $400, $100 may go to the cost of the death benefit insurance while the remaining $300 goes to a cash value account that earns tax-deferred interest in either a fixed rate account or in one or more market-indexed accounts. The fixed rate account increases at a guaranteed rate while the Indexed UL accounts increase at a rate similar to  a specified market index such as the S&P 500 or Nasdaq 100. Money is not actually invested in these indexes, rather the insurance company guarantees to pay interest on your investment in this account equal to the performance of the chosen index minus a cap or spread.

Investopedia states that “an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value.” The client does not lose money if the index declines, but no interest may be paid on the portion of your cash value invested in that particular index account for that time period, or possibly a guaranteed minimum rate will be paid. IUL insurance policies are often purchased by sophisticated investors who need the death benefit of a life insurance policy and want a cash value accumulation benefit that allows for above average returns based on well-known market indexes. An IUL policy allows for more aggressive cash accumulation than a UL policy but avoids the investment risk assumed by the client with a VUL policy. If the client above increases their premium from $400 to $1,200, the cost of the death

IUL insurance policies are often purchased by sophisticated investors who need the death benefit of a life insurance policy and want a cash value accumulation benefit that allows for above average returns based on well-known market indexes. An IUL policy allows for more aggressive cash accumulation than a UL policy but avoids the investment risk assumed by the client with a VUL policy. If the client above increases their premium from $400 to $1,200, the cost of the death benefit insurance is still $100, but now $1,100 goes towards cash value. If this is invested in an index that increases by 10%, then the investment portion of your premium more than pays for your insurance, and your cash value continues to grow. The opportunity for a higher return on investment without risk of loss makes  IUL insurance policies a viable strategy for retirement savings.

Really?  IUL Used For Retirement Planning?

The flexibility of IUL policies is attractive to many investors. In the article How to use an IUL as tax-free retirement savings strategy, on the website LifeHealthPro, the author notes that “unlike an IRA or 401(k), there are no limitations on the amount your clients can contribute annually to their IUL. As a result, the IUL can have a high starting cash-value-based on what they contribute to the policy. Even better, your clients can have access to their cash value at any age, any time, for any reason, without paying taxes or penalties. IULs also allow a tax-free exchange of one policy for another, plus the flexibility to change death benefit amounts, premium amounts and payment frequency.” The article mentions high earners who want the more flexible cash value access of an IUL policy as compared to other tax-deferred accounts, investors with maxed-out retirement accounts and those who are limited in the tax-deferred income they can contribute to their 401(k)s, are clients likely to be attracted to the benefits of an IUL insurance policy. Although IUL policies are not for rolling over a former employer’s retirement plan assets, a baby boomer who has put off retirement planning, an IUL could be a great place to max out their savings.  All of this investment opportunity and cash value access is of course paired with a tax-free death benefit and the peace of mind that your loved ones will not suffer financially in the unfortunate event of your passing.

The article “Why Indexed Universal Life Insurance Can Be a Good Retirement Investment” on the website MainSt cautions that many life insurance companies cap the rate they will pay, often at 14.5%. So, for example, if you invested in the Nasdaq 1000 and that index increased by 10% in a year, your account would be credited with 10% of your investment. If in the next year the Nasdaq increased by 20%, you would make 14.5% on your investment. Some companies offer a “no cap” option, that would allow the client to receive the full 20% on their investment but still be protected from loss in the case that the index they have invested in declines.

Also beware that many life insurance companies set a “participation rate” on IUL policies which means that your account will not be credited the full increase of the index you are invested in. For example, if you have $4,800 invested in an index that increases by 10% and the insurance company has set the participation rate at 85%, then your profit would be

$408 = $4,800 X .10 X .85  .10 is the rate of increase of the index

.85 is the participation rate

profit = investment X index increase X participation rate

IUL used for retirement planning is a strategy that we use everyday with our clients.  It is very important to fully understand what your options are. These policies are ideal for just about anyone wanting to take advantage of tax-deferred growth and tax-free income during retirement.  Ogletree Financial Services can help you find the right policy with the right insurer that best fits with your unique financial strategy and insurance needs.

The best way to ensure that you’re getting the best coverage is to work with an independent insurance agent. Unlike a traditional insurance agent, independent brokers work with dozens of highly rated companies across the nation, which means that they can bring all of the best insurance rates directly to you.

Every insurance company is different, which means that you could get drastically different rates depending on which company that you get the quote from. Rates could vary by hundreds of dollars depending on the companies. If you want to get the best insurance rates for your coverage, it’s important that you get dozens of quotes before you pick the one that works best for you. Instead of wasting your time calling all of those agents yourself, let one of our independent agents do all of the hard work for you. You could answer the same questions over and over again, or you can let one of our agents bring all of the best rates directly to you. No hassle. No waiting.

We know that nobody wants to think about his or her own death, but it’s important that you plan for the worst by buying a quality insurance policy. Not only will an indexed universal policy give your family financial protection, but it can also help secure your retirement as well. You’ve worked hard to reach that stage of your life, and one of these policies and ensure that you have the finances to enjoy it.

Because you never know what’s going to happen tomorrow, you couldn’t wait any longer to get a quality insurance policy. Contact one of our agents and we can get the process started.

Getting the best life insurance plan is one of the best decisions that you’ll ever make for your family. If something tragic were to happen to you, it’s important that your family will have the money that they need. If you have any questions about indexed universal life insurance or how you can use it for retirement planning, please contact one of our agents today. We would be happy to answer those questions and connect you with the best plan to meet your needs.

You can call us at 1-800-712-8519 or use the contact form to request more information and a personalized illustration.

About Ogletree Financial Services
About Ogletree Financial Services

As independent life insurance agents, we specialize in finding the best life insurance rates and policies for our clients.  Our customers are located all over the USA.  If you would like a personalized life insurance quote, you can start here on our website or give us a call at 1-800-712-8519.

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