Simplify Your Retirement with the IUL

Unless you think you can live on Social Security, you’re likely saving in some fashion for retirement.

The simple question for savers is: “are you aware of all the options available to you?”

It’s important that you understand “how you save” is just as crucial as “how much you save” so understanding your options is a first step in defining your savings plan to meet retirement goal.


How You Accumulate is Critical


As a saver, you have options. There are a variety of types of savings vehicles you can employ in order to accumulate assets. To take advantage of these saving vehicles and put them to proper use, it’s important that you understand the following:

  • How your assets will grow
  • How you will be taxed
  • When and how you can access the funds

Two very popular methods that American workers use to save for retirement are the 401(k) or Traditional IRA and the Roth 401(k) or Roth IRA. We have charted for you the highlights of these products two similar but different products for your review:


 Traditional IRA or Traditional 401(k)Roth IRA or Roth 401(k)
Asset GrowthMultiple options but typically mutual funds. Your account value can fluctuate with market fluctuation and can lose value and principal.Multiple options but typically mutual funds. Your account value can fluctuate with market fluctuation and can lose value and principal
Taxes on ContributionsTaxes are deferred because of Qualified FundsTaxes paid upfront because of Non-Qualified Funds
Tax liability on growthEntire account value is taxedNo tax liability
Penalty for early withdrawal (before 59 1/2)10%10% on earnings
RMD at 70 1/2YesNo
Annual contribution limitsYesYes
Death benefitThe account value minus taxesThe account value only


The Indexed Universal Life (IUL) Alternative


Although life insurance is typically used for providing a death benefit for surviving loved ones, there are specific types of life insurance that can also be used for investing. These types of insurance products accumulate cash value over time that can be used as an income stream when you access the cash value using policy loans.

Indexed Universal Life is one such insurance product that offers a permanent death benefit along with a flexible cash component. It is important to note, however, that qualifying for an IUL is based on your age and health at the time of the application. The chart below describes the four primary highlights of Indexed Universal Life:


The Death BenefitAn IUL provides a death benefit for your surviving loved ones that is over and above the account value in your policy.
Account GrowthThe account growth in the IUL is based on the performance of the indexes (like S&P 500 and NASDAQ) your account is linked to.
Tax LiabilitySince the premium payments to the insurer are made with after-tax dollars, the cash value in your account grows tax-free. You will typically not pay taxes on the loans you take from the policy during retirement.
Policy FlexibilityUsing policy loans, your IUL can provide flexibility to access the funds in your policy when you need it during retirement.


How Funds Accumulate in Your IUL


Since your IUL’s primary purpose is to accumulate cash for an income stream during retirement, most insurance and financial professionals will recommend that the death benefit is set as low as possible. When the insurance policy is set up, it allows the policyholder to pay periodic premiums into the policy where a portion is used to pay for the life insurance and the balance is deposited in the cash value account.

The funds in the cash value account will then earn interest that is based on the performance of the index selected by the policyholder. Different insurers offer various index options but the most common indexes available include:

  • The Dow Jones Industrial Average
  • The NASDAQ 100
  • The S&P 500 and S&P MidCap 400
  • High Participation rate S&P
  • The Russell 2000 Index
  • The EURO STOXX 50
  • The Multi Index
  • BNP Paribas Momentum 5 Index
  • The Bloomberg US Dynamic Balance Index II

With most IUL policies the policyholder can elect to allocate premiums to be invested in the indexes above or the policyholder can elect to allocate the funds to a fixed account. When a fixed account is chosen, the account will typically earn between three and four percent, however, most policies will guarantee three percent.

Your index credit is applied to the cash account on the crediting date which is typically the day following the index period actual end date. Most policies will include a “cap” which represents the limit on earnings that will be credited to your account and a “floor” which represents the minimum interest rate that will be added to your account. The “floor” rate provides protection that your credit rate will never go below zero.


Your Insurer Cannot Predict the Earnings in Your IUL


Although your insurance or financial professional can illustrate the expected growth of cash in your IUL, the illustrations are PREDICTIONS that are based on historical activity of the index you select and are never represented as guarantees. Here is an example of historical data for a policy using the S&P 500 with an 11.5% cap and a 0% floor. The interest credit shown is an average for the time period illustrated:


Time PeriodAverage Interest Credited
1997 - 20066.8%
2000 - 20094.9%
2003 - 20127.2%
2006 - 20157.1%
2009 - 20187.7%


How to Create an Income Stream for Retirement


It’s important to note that the IRS does not limit the amount of premium you can contribute to your IUL like they do with an IRA. The result of having no contribution limit means that the cash account can grow substantially in the early years of your policy. While your cash value continues to accumulate there is no need for concern about tax liability since your earnings grow tax-deferred.

Once your account has accumulated sufficient cash value, you can then begin taking a tax-free income stream using policy loans or withdrawals. This is where the IUL really demonstrates its value in your retirement plan – tax-free retirement income. Also, it’s important to note that the loans against your cash value do not have to be repaid and your account will continue to earn interest because the loan is against your cash value and not from your cash value. Your cash value is used as collateral but not reduced by the amount of the loan. The insurer is repaid when you die by deducting your loans from the death benefit.


What Happens When You Die


When you eventually die, the death benefit you selected will be paid to your surviving loved ones tax-free. The loans that you have been taking against your cash value are repaid to the company out of the death benefit and the remaining funds will go straight to your beneficiary or beneficiaries tax-free.


Which Investment Vehicle is Best for You?


Most people who start saving early in life will find that the Roth IRA can meet their retirement needs. However, for investors who want to maximize their tax-free income during their retirement years, the Indexed Universal Life policy can provide not only a tax-free income but also a death benefit for surviving loved ones.

For many hard-working Americans, using multiple investment products will deliver the best retirement planning solution so that income during retirement is not something that you’ll stress about when the decision to stop working is made.


We are Here for Your Needs
For more information about retirement planning options, please call us at (800) 712-8519 during normal business hours or contact us through our website and we’ll be happy to discuss it.


About Doug Mitchell
About Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent over 20 years in the life insurance industry and has also held licenses to sell securities, long-term care insurance, home and auto insurance.  For two years, Doug served as President of the Auburn Opelika Association of Financial Advisors and has been a member of the Million Dollar Round Table.  He obtained Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award.  Later in his career with New York Life he was an Executive Council Member.  Doug currently serves as President of Ogletree Financial, a life insurance marketing organization with over 1000 life insurance agents.  Today, Doug’s main focus is servicing 1000s of policyholders and growing his agency through the reach of

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