An Indexed Universal Life Insurance policy (IUL) is a permanent life insurance product with flexible premiums which contains a life insurance component and an investment component. Similar to other cash value life insurance, your premium is deposited in a cash account in your policy that is used to pay policy charges and fees, and then is increased by crediting under the terms and conditions specified in the policy.
What separates an IUL from other kinds of permanent insurance that can be used to build cash value, the interest credits are based on the performance of equity accounts that are chosen by the policyholder. The IUL, however, excludes dividends and contains a “cap” that limits the maximum amount the cash account can be credited and a “floor” that establishes the minimum amount the cash account can be credited.
As a simple example, let’s assume a policyholder has selected that all available cash in the account is invested in the S&P 500 index. If at the end of the reporting period, the S&P 500 records an increase of 13% and the policy’s “cap” is 12%, then the cash value in the account would be credited 12%. If, however, the S&P 500 recorded a negative 8% return, the policy with a 1% floor would credit the policy with 1%.
The “cap” and “floor” rate and the fact that the policy’s cash is not directly invested in the market, provides the policyholder a sense of “safety” with their hard-earned premium dollars, especially when the policyholder understands that at no time will their cash account suffer a loss.
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Why Should Pediatricians Consider an IUL Policy?
Depending on the state a pediatrician practices in, ZipRecruiter reports that the average salary is between $175,000 and $200,000 per year. Similar to other medical professionals, pediatricians will likely have to overcome limits placed on traditional investments like 401k or IRA in order to accumulate enough wealth that will allow them to live a comfortable lifestyle in retirement.
Although we rarely recommend that an IUL be the only investment vehicle in your retirement planning portfolio, the chances are very good that an IUL can deliver more interest on your contributions over time and provide for a tax-free income stream. There are several highlights of the IUL that support this statement:
- There are no contribution limits on an IUL like there are on ROTH IRAs, 401K and SEP IRAs.
- There is no minimum distribution requirement (RMD) like there are on traditional investment products like the 401k or IRA.
- Since the income stream from an IUL is delivered using tax-free policy loans, the net income from an IUL can be substantially higher than income from a 401k or IRA where the distributions are taxable.
- The IUL provides a lifetime death benefit not found in other traditional investment products.
- Option to convert from IRA to ROTH IRA or IUL
How have IULs Performed Historically?
Although most indexes like the S&P 500, NASDAQ 100, and the Multi-Index did not perform well in the early 2000s, the performance of these indexes has provided significant gains over the last ten years. Here are the actual gains as provided by Bloomberg for four popular indexes over the last ten years:
|Year||S&P 500||S&P MidCap||NASDAQ 100||Multi-Index|
These earnings do not take into consideration a policy’s cap or floor rates. If, for example, your policy contained a cap of 13% with a 100% participation rate and a floor of 1%, you can easily see that your policy would have earned from 1% and 13% and never lost cash value during the time period listed.
Which Companies do you Recommend for Indexed Universal Life?
Over the years we have represented many insurance carriers that offer IUL insurance. We have also found that the cap, floor, and participation rate, as well as policy expenses, vary from company to company. We have developed a list of carriers that we feel offer the best return on contributions for clients who have elected to include the IUL as part of their retirement planning process, but first, we’d like to offer a video that explains what Indexed Universal Life Insurance is all about:
Here are the Companies We Recommend:
North American Life Insurance
When it comes to retirement planning for medical professional like pediatricians, North American is generally our go-to insurance company. North American is rated A+ by AM Best rating services and has a Comdex Score of 92. Owned by Sammons Financial Group, we believe the North American’s Builder Plus IUL offers a solid solution for building wealth for retirement. Their Cap and Floor rates are very competitive and they offer a 140% participation rate along with a 1% guaranteed interest bonus.
Midland National Life Insurance
Also owned by Sammons Financial Group, Midland National is another top performer that we recommend for Indexed Universal Life insurance. Midland also has earned an A+ rating from AM Best as well as an A+ rating from the Better Business Bureau.
Midland’s IUL also has a competitive cap and floor rates and is a perfect candidate for a medical professional’s LIRP.
Symetra Life Insurance Company
Symetra is another life insurer who has very high ratings by the national rating services like AM Best, Standard & Poor’s, Moody’s, and Fitch. All of which gave A ratings to the life insurer.
Symetra’s Accumulator IUL offers competitive cap and floor rates and a significant Persistency Bonus that reward’s the policyholder for maintaining the policy as originally planned at inception.
Allianz Life Insurance Company
Allianz Life is a popular insurer who offers a complete portfolio of life insurance products that includes several offerings of Indexed Universal Life products. Each product is designed for a specific purpose such as wealth accumulation (retirement planning), asset protection, and estate planning.
Allianz has earned extremely high ratings from all of the major rating services and is an excellent choice for pediatricians who are dissatisfied with traditional retirement products.
Minnesota Life operates under the umbrella of Securian Financial Group and has roots that were established as far back as 1880. This company also enjoys very high ratings from the national rating services while providing a complete portfolio of life insurance and investment products.
Minnesota Life is in our top five list of IUL providers because of very competitive rates, competitive cap, and floor rates and a history of providing a solid wealth accumulation products for clients and prospective clients.
The IUL Bottom Line for Pediatricians and other Medical Professionals
Although Indexed Universal Life Insurance appears complicated on its face, there are only a handful of factors that clients should consider when deciding which company and policy will best meet their needs. As an independent insurance agency, our insurance professionals will ask all the right questions and provide all the right answers when we discuss with you a subject as important as how you’ll live a comfortable lifestyle during the retirement years ahead of you.