Life insurance policies come in all shapes and flavors. One of the more popular types in recent years is the Indexed Universal Life (IUL) policy. Rather than offer a fixed payout at the end of your life to beneficiaries, it can offer a tax-protected shelter that can fluctuate based on an asset class that you choose. You may have the ability to exit these early to fund your retirement if the return is great enough and you are willing to pay the penalty. Additionally, they can rise much quicker than whole life insurance policies. For that reason, they are becoming very popular.
IULsvide the ability to choose from several different indexes* depending on your preference and analysis of the market. You may choose the Dow Jones Industrial Average, the S&P 500®, the Nasdaq® or even certain more niche indexes. This range of choice is astounding and greatly increases the amount of variability you can receive from your life insurance policy.
This is in direct contrast to the two main types of life insurance policies which include fixed and variable policies. Fixed have an exact payout amount that your beneficiaries receive after you pass, based on the number of payments you make over a period of time. Variable policies have the same fixed contribution over time, but track the market interest rates. Theyovide slightly more upside with a little more risk.
An IUL is additionally a type of tax-protected investment structure that you can use to fund your retirement. While 401(k)s and IRAs have certain limitations on the amount that can be contributed, IULs can be much more flexible. Policy holders can place a large purchase payment into these policies and watch them grow. As the policy value rises, they become more and more capable of funding a strong retirement.
Some employers may offer key employees of the company life insurance policies by indexing the funds to the performance of the company. Whereas most people choose to link their IULs to a broad array of companies that represent the entire economy, a corporate policy may be different. It can link the policy solely to the value of the company’s stock price.
At some point after the age of 70 and 1/2 you may choose to start withdrawing or cash out your IUL policy. Depending on the structure of the policy, the payment can be one-time or over a stream of payments over a number of years. In any case, due to the tax-protected policy and the baseline return guaranteed by the insurance company**, the funds can be larger than what you placed into them.
The policies are issued by large, well-known insurance companies with massive balance sheets. Only certified financial professionals with detailed knowledge of the products are permitted to market and sell the IUL policies. However, you must still form a base of trust and familiarity with your financial professional before purchasing a product. That’s because they have to understand your financial situation before recommending the most suitable policy (unless the policy is directly linked to your employer and the stock is only your company stock). In any case, more and more people are realizing the benefits of these policies.
For more information on IULs and other policy options contact IFN today. 800.921.3100.
* IUL policies are credited with interest based on an external index. Policy owners are not buying shares in the underlying index and therefore do not directly participate in the index or any equity or fixed interest investments. The original principal (less any withdrawals) and any interest credited are guarantees that are backed by the financial strength and claims paying ability of the issuing company.
** Guarantees are backed by the financial strength and claims paying ability of the issuing company.