Indexed Universal Life Insurance is a powerful insurance product in which the premiums paid toward the policy are added to policy’s cash value. Contrary to Term Life Insurance, the premiums you pay into an IUL policy remain yours- not the insurance company’s. The cash value is linked to the performance of an index fund, usually the S&P 500 which historically averages 7% (pre dividend) annually. Because IULs are generally held for the life of the insured, compounding interest boosts the cash value in an awesome way. For example, a IUL with a total of $100,000 in premiums paid, growing at 6.87% for 30 years will end up with a cash value over $730,000! Sounds good? It gets even better.
With an IUL, there are no taxes due during the accumulation phase on the policy’s cash value growth. Once the policy is fully funded, you can take tax-free distributions of the cash value to boost your retirement income. As with all life insurance policies, the death benefit is also tax free (that is unless your estate is valued above the estate tax exemption rate).
An IUL is structured with a floor of 0 and a cap around 11% .For example, if the S&P 500 loses 18%, your cash value would remain the same and if the S&P 500 gains 18% your cash value would grow 11%. Because of floors and caps, IULs are far more similar to fixed income products than other equity products. Which fixed income product returns returns more than 3.5% these days?
One of the greatest things about IUL policies are their versatility. During the early years of the policy it provides your family with security, and in the later years the cash value provides extra income during retirement. Once the policy is sufficiently funded, the annual returns are generally enough to cover the cost of insurance within the policy. The extra cash value in the policy can be withdrawn as a tax free income from the policy.
We at Cordia Life encourage clients to Max Fund their IUL policies. Max funding a policy helps build up the cash value during the early years of the policy which enables the policy to perform well and easily cover the cost of insurance during the later years of the policy. Contact us for more information or to schedule a consultation with one of our life insurance specialists.