For some, living on a six-figure income is part of the American dream. At that point, you might not be rich but you may be comfortable and able to pay the bills on time. With a little foresight, you could potentially also save money that could shield you from some economic issues. However, placing money in a bank savings account may not be the better choice to save as the interest rate is typically only one or two percent per year. Instead, individuals can turn to a tax protected, insurance product that has growth and safety potential over time. The products, in the case of a negative economic shift.
IULs are gaining more and more popularity among life insurance buyers for a number of reasons. Most people know that a life insurance policy involves a stream of payments by the policy holder in return for a death benefit to the spouse or dependents. The concept of an IUL is a little different. The policy holder pays a stream and the return of the funds partially goes to provide a death benefit or while the remainder is an amount that can be cashed out at a certain period of time. The return of the cash will be “linked” to the performance of an index of the policy holder’s choosing. Common indexes include the Standard & Poor’s 500 and the Dow Jones Industrial Average. Policy buyers can choose what component goes to the death benefit traditional policy and what component goes to the index linked portion of the premium.
The other key factor is that an IUL provides the ability to cash out of a life insurance policy in the case of an economic calamity such as a loss of a job, a medical emergency, a car crash, a home fire or a poor investment decision in some other product. Even individuals with six-figure incomes see these events occur at some point in their life. Often times, the savings in a bank account are simply not enough. That is why an insurance product can be a good addition to a diversified retirement plan.
Those Premium returns are also tax deferred so the cash can continue to grow. Some tax or financial professionals will recommend IUL policies for this reason alone. There are few good alternatives besides Roth IRAs and 401Ks that can preserve capital for retirement and shield it from the IRS. However, IULs in some cases could be a better option because the cap for premium could be higher.
Premiums for an IUL can be less than traditional life insurance because you are baring some of the risk yourself. The insurance company is not guaranteeing the return and if the market does not perform, you do not get a good return. However, investors still have the choice of the index to link to so they maintain some control.
The premium is not directly invested in the stock market so there are no brokerage fees and no risk of loss from fraud. There is no risk that you cannot cash out of a stock because the funds are not actually invested in the stock market. The value is simply equal to the index that you choose. *The insurance company is responsible for depositing the amount in your account.
For example, imagine that you start with a $10,000 premium and link the life insurance policy to the Standards & Poor’s 500.After each month, the IUL provider adds the funds based on the market return. **After one year, if the market returns ten percent, the insurance companyill deposit an additional $1,000 in your account.
Interested in learning more about Life Insurance? Contact Imeriti Financial Network today! 800.921.3100
* Guarantees are backed by the financial strength and claims paying ability of the issuing company.
** This is intended to illustrate how index fluctuations might affect your contract values.