Internists, commonly referred to as “family doctors,” generally enter start practicing medicine after completing their basic internal medicine training. Since they practice general internal medicine, these physicians are considered general internists that are equipped to take on a large spectrum of adult illnesses. Internists are primarily known for their ability to diagnose their patients and offer treatment programs for recovery.
Some internists continue on with their education to sub-specialize in more specific areas of internal medicine which generally means three more years in a fellowship. As far as compensation is concerned, Glassdoor reports that the salary for internists range from $194,000 to $305,000 with the average being about $262,000. It’s logical that like other medical professionals, internists are going to find challenges when saving for retirement using traditional retirement investment vehicles like 401k, 457, 403b and SEPs, so for this reason, we’ll discuss IUL insurance for internists.
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What is Indexed Universal Life Insurance (IUL)?
An IUL policy is similar to a typical Universal Life policy but with specific additional benefits that actually makes it more of an investment product than a traditional life insurance product. Using an IUL, the policyholder can use the cash value in the policy to invest in a fixed account or various index accounts.
The policyholder has control of the amount of money to invest in each index such as the NASDAQ 100 or S&P 500. In fact, the policyholders today have many more options since there are currently about ten different indexes that are available to policyholders. Policyholders should also know that their money is not invested directly in the stock market which means they need not worry about market volatility which could result in substantial losses in a down market.
As with any life insurance or investment product, there are advantages and disadvantages that should be considered before jumping in with both feet in an IUL.
Advantages of an IUL
- Higher Earnings – Because you can direct your policy’s cash value to be invested in index accounts like the S&P 500, your earnings will generally be higher than other cash value policies such as whole life or universal life. The top iul carriers will compare the performance of several indices and will give additional weight to the indices performing better than others. This is an example of a multi-index option.
- Guaranteed Floor Rate – Your IUL will contain a “floor rate” specified by the carrier which is the minimum amount of interest that can be earned after a reporting period. This means if the indices you have chosen perform very poorly, your account will not lose money since the floor rate is typically between 0% and 3%. The floor rate in your policy will prevent you from losing assets when the market is down during a reporting period.
- No Limit on Annual Contributions – Unlike traditional retirement plans such as 401(k) or IRA, the IRS will not limit the contributions you can make to your IUL. This is typically the most popular benefit since many high-income earners will max out other investments which can leave them short of their retirement goals.
- Tax-Deferred Cash Accumulation – The cash value in your IUL grows on a tax-deferred basis and the death benefit is paid tax-free to your beneficiaries. When the policyholder elects to withdraw cash from the policy, they can do so using policy loans on a tax-free basis.
- Conversion from other Investment Vehicles – There is a somewhat simple process for medical professionals like internists to convert an underperforming and a restricted IRA to an IUL policy that may perform better over time, contains no contribution limits, and has no mandatory required minimum distribution rules like other investment vehicles.
- Built-in Flexibility – Like a traditional universal life policy, the policyholder can reduce or even skip premium payments when needed and decrease or increase the death benefit to accommodate life events that may call for more or less life insurance coverage.
- Tax-Free Death Benefit – As long as the cost of insurance is paid by the policyholder, the insurance company will pay a guaranteed death benefit for the lifetime of the insured.
- CAP Rate – Every IUL insurance policy contains a “cap rate” specified by the insurer. This rate represents a limit on earnings for each reporting period. An example would be if your IUL has a 14% cap and your indices earn 16%, the most that would be credited to your cash account would be 14%. For most policyholders, even though they have a cap on earnings, this cap is offset by the floor that ensures they will not lose a portion of their asset in a down market.
- Participation Rate – Each insurer that offers IULs establishes a participation rate that determines the percentage of the earnings of your indices that they will pay to your cash account. Participation rates that are less than 100% are generally established by carriers that offer extremely high cap rates.
- Mortality Expense – IUL policies contain mortality charges which represent the cost of life insurance for the death benefit you selected. These charges are deducted from cash account and will go up each year your policy is in force. Although the mortality charges are established when your policy is issued, they are not guaranteed by the insurance company.
- Policy Loads – Loads are generally made up of the cost to acquire your policy. This represents the commissions the company pays to the agent of record and is typically deducted from your initial payment on the policy.
- Surrender Charge – All IUL policies contain a surrender charge that represents the amount of money it costs an insurer to keep the policy on the books. The surrender charge is set by the company and is usually takes between 10 and 20 years before they go away. Needless to say, it is always recommended that refrain from canceling your policy early when you would be subject to surrender charges.
The Bottom Line for IUL for Internists
As we mentioned earlier in this article, medical professionals typically have challenges to deal with when they implement retirement products. If you are concerned that you may not be able to accumulate enough wealth to meet your retirement goals, it’s a good time to consider an Indexed Universal Life policy that allows you to invest as much as you want every year and does not have the IRS controls that traditional investment products contain. Each year the indexed universal life insurance or LIRP has been becoming more and more popular among high income earners such as physicians.