Many companies have started offering indexed universal life insurance (IUL) to their customers for implementing an IUL retirement account.
Each IUL company is different.
Each company has its own advantages and disadvantages that you should take note of when you’re shopping for coverage and considering indexed universal life insurance retirement.
Although only in the marketplace for about twenty years, new policy sales of Indexed Universal Life (IUL) insurance continues to grow and according to LIMRA, accounts for 23% of all life insurance sales in 2023 year to date.
It appears that 2023 will see even more consumers looking for better ways to plan for retirement. We have already seen several new indexed universal life insurance to hit the market place. North American has the Builder Plus 3, Midland National has CV Max and Symetra has the Accumulator Select.
Needless to say, indexed universal life insurance does have its fans in the world of financial and retirement planning. IUL for retirement is typically used as a cash accumulation product and goes by several different names. A life insurance retirement plan or LIRP is used by many advisors to describe indexed universal life as a retirement plan.
The perks this product brings to the table are just too good to overlook. Yes, there are many reasons to use IUL for retirement planning, but, as with any insurance product, there are plenty of naysayers out there that claim otherwise.
IUL insurance policies can be an excellent option for retirement planning and life insurance coverage, but they can also be confusing. It’s important to understand all of your options when deciding what is the best kind of life insurance policy to purchase and how to create your IUL savings account.
This article is going to explore the different advantages of IUL and reasons that you should consider purchasing one of these plans.
Let’s Look at Six Reasons to Use IUL for Retirement Planning
The Safety Factor
Investors who have been seriously burned by declining returns in the bond, equity, and real estate markets certainly understand the value of a guarantee that their annual returns will never be a negative number. That coveted guarantee is exactly what IUL is famous for. Because of the annual reset provided in the contract, current values cannot be negatively impacted by a down market which will preserve the funds in your IUL retirement account.
Tax-Free Cash Flow
While other well-known and popular investment vehicles may create a tax burden for the investor, the IUL eliminates the drawback since cash flow can be created by accessing accumulated funds through contract loans that are immune from federal, state, and local income taxes. These cash producing loans are also free of the alternative minimum tax that can be levied against most other investment products.
When you consider the earnings in your account along with the tax-savings benefits, the IUL just keeps looking better and better.
Higher Positive Returns
As the market has suffered over the last decade with a lower than expected return on investment, traditional investment products have become somewhat unattractive to savers. With the IUL, if the selected index performs well over the measured period, your contract can experience an interest-earning that is considered very attractive. In fact, some IUL products include interest crediting formulas that will compare multiple indices and then more heavily weight the better performers which makes indexed universal life insurance for retirement a significant retirement planning option.
The Available Death Benefit
Although death statistics can be very disappointing, it’s important to take into consideration the financial devastation that can result from the unexpected death of a wage earner. Reports provided by the Life and Health Insurance Foundation for Education indicate that a man at 35 years old has more than a one-in-six chance of dying before retirement, and a man at 45 years old has more than a one-in-seven chance of dying before age 65.
Fortunately, your IUL policy provides a tax-free death benefit that mitigates this risk by providing the funds needed for your family and surviving loved ones to continue with their lives without excessive worries about finances.
Coverage for Life without Paying for Life
An unexpected bonus that comes with your IUL retirement account is that once you stop paying periodic premiums and begin taking cash through policy loans, your insurance coverage doesn’t end but remains a component of your IUL retirement plan.
In fact, many policyholders continue to be covered for the rest of their lives without having to keep paying additional money into the contract.
Return of Premium
With the help of some sophisticated illustration software, we can design a legitimate scenario for you where you can be assured that at a future point in time, you can cancel your policy and have the insurer pay you, at least, the amount that you have paid in over time. Although this is not the same concept that some Term policies offer, the final accounting is basically the same.
You pay in a designated periodic premium for a predetermined amount of time and then cancel the policy and receive enough money from the cash account that it is equal to your premiums paid in. The return of premium is just another level of safety for you, the consumer.
IUL insurance policies are not perfect for every consumer. In fact, the word “Perfect”, should probably not be attached to any investment product until the end of the investment period when the investment performance can be legitimately rated. The IUL for retirement is, however, one of the best methods for supplementing a retirement plan and providing life insurance coverage at the same time.
If you’re looking to get simple and cheap life insurance, then an IUL plan is not going to be the best option for you. There are several more affordable plans that you can choose from, but if you want to get a policy that is going to give you additional financial advantages, then an IUL can be a great option.
Compare IUL with Traditional Retirement Plans
| Features | IUL | Roth Plan | Qualified Plans 401(k), IRA, Etc. | Conventional Pension |
|---|---|---|---|---|
| No market risk | Yes | |||
| Death Benefit | Yes | |||
| Accelerated Death Benefit and LTC Rider | Yes | |||
| Loans with no repayment required | Yes | |||
| Withdrawals accessible prior to age 59 1/2 | ||||
| MDR at age 70 1/2 | Yes | Yes | ||
| Tax-Free Earnings | Yes | Yes | Yes | |
| Earnings not counted toward Combined Income | Yes | Yes | Yes | |
| Tax-Free Death benefit to heirs | Yes | Yes | ||
| Legislation Friendly | Yes |
How Much Life Insurance Do You Need?
Regardless of which type of policy you buy, it’s vital that you purchase enough protection for your family. Not having enough life insurance is one of the worst mistakes that you can make for your loved ones. There are several different factors that you’ll need to account for before you buy insurance coverage.
The first number that you should crunch is your debts and other final expenses that your family would be responsible for if you were to pass away. The primary goal of your life insurance is to give your loved ones the money that they need if something tragic were to happen to you. Be sure to add up your mortgage, student loans, and burial fees. All of these can add up to thousands and thousands of dollars of debt, and that’s where your insurance plan comes in.
The next number that you should add up is your paycheck. The secondary goal of your insurance policy is to replace your paycheck. If you’re one of the main income earners in your home, they would struggle if something were to happen to you. That’s where your life insurance comes in. It gives them the money that they need to get through a difficult time without sacrificing their standard of living.
Every insurance company is different, and they all have different medical underwriting standards, which means that you’re going to get drastically different rates depending on which company that you get the quote from. If you want to get the lowest premiums, it’s important to compare dozens of quotes before you decide which one is going to work best for you, and our agents can help you do that in a matter of minutes. We can bring you the best personalized quotes and connect you with the perfect policy for you.
You never know what’s going to happen tomorrow, which means that you shouldn’t wait any longer to get life insurance protection for your family. We know that isn’t a frustrating and overwhelming process, but it doesn’t have to be. Our experienced agents are here to help you get quality insurance at an affordable price. It’s our mission to save you money and get your family the protection that they will need.
Who We Recommend for IUL
So that we can offer realistic and competitive retirement planning quotes, we are continuously updating our database for the companies that are offering the best Cap and Floor rates along with competitive insurance pricing and outstanding customer service. Listed below are the companies we use the most with a link to each company’s review page. All of them are very good candidates for indexed universal life insurance and should be considered when using IUL for retirement income.
Allianz Life
Allianz Life and their Life Pro + is at the top for accumulation and tax free distributions. Allianz has high ratings and does a good job maintaining their caps and spreads. This allows their product to perform year over year. Currently their fixed account pays 5% interest. They also have a rate lock feature that allows the policyowner to lock in a rate mid year if they are happy with the growth at that point.
North American Company for Life and Health
North American stays at the top of our preferred carrier list because of continuous high ratings from all the national rating services and a complete portfolio of competitively priced insurance products.
Minnesota Life Insurance Company
With roots planted as far back as 1880, we consider Minnesota Life as a go-to carrier for retirement planning with indexed universal life insurance. Minnesota Life is a member of the Securian Financial Group and a top performer when it comes to premium and customer and claims service.
Symetra Life Insurance Company
With insurance ratings of A or better, Symetra Life continues to be a member of our top ten insurers for IUL and other life insurance products.
American National Life
American National Life is another life insurer with over 100 years experience and has grown its footprint across American. With high ratings from the national rating services and competitively priced insurance products, we are proud to represent American National Life.
Lincoln Financial Group
With a company name like Lincoln Financial, it’s difficult to imagine this company being anything less than excellent and that’s exactly the way the rating services feel about their financial stability:
- A+ by A.M. Best Company (the second highest rating out of 16 total)
- AA- by Standard & Poor’s (the 4th highest rating out of 21 total)
- A1 by Moody’s Investor Services (the fifth highest rating out of 21 total)
- A+ by Fitch Ratings (the fifth highest out of 19 total)
Lincoln National is continually one of our go-to carriers for retirement planning with life insurance.
Frequently asked Questions
What are the top 3 companies you recommend?
Although company recommendations largely depend on your goals, our top 3 insurance companies that are recommended are:
1. North American Company for Life and Health
2. Midland National Life
3. Minnesota Life
How can I take income tax-free from my IUL?
Anytime you withdraw funds from your IUL, you should take the withdrawal as a loan because the IRS doesn’t consider a policy loan taxable income. Yes, you will be charged interest but the tax savings will be more than enough to offset any interest charges.
Do I have to pay back IUL policy loans?
It’s your choice. You can pay back your loans or you can opt for letting the company deduct any outstanding loans from your death benefit.
What should I do with my 401(k) – should I keep investing?
In his book, The Power of Zero, David McKnight recommends that you continue investing in your 401(k) until you reach the employer’s match limit and then divert those contributions to your IUL for future tax savings.
