What is an IUL?
Indexed Universal Life Insurance:
Tax code approved policies that protect & grow your retirement savings while also allowing you to access it tax-free.
Is an IUL a good tax-free retirement savings strategy?
Index Universal Life Insurance (IUL) is a cash value life insurance product that pays an interest rate based on the return of a particular market index over a period of time, typically one year. The insurance company determines the interest rate each year based on the movement in the chosen index (usually a stock or bond index like the S&P 500).
Our IUL policies all include a guaranteed provision that your cash value will never have a negative return due to market losses.
Neither the initial funding nor any gains the policy realizes can ever be lost.
When structured correctly, an IUL can provide many tax advantages:
Protection Against Market Volatility
An IUL provides the gains in the market without any market risk because it’s not an investment in the stock market. With an IULs’ principal-protection guarantee, gains from the previous year are locked in and reset, so the principal cash value remains the same, less any fees. So if the market falls a large percentage like we saw in recent past, then no losses are incurred.
The adjacent graph shows how the indexing strategy has performed against the S&P 500 over a 20 year period. The red line represents the S&P 500, the green line represents the indexing strategy with a 12% cap and a 0% floor, and the blue line represents a guaranteed 5% annual growth rate.
Advantages of an IUL as a Tax-Free Retirement Savings Strategy
The premiums paid into Index Universal Life insurance earn interest based on stock market indexes and grow the cash value within the policy.
The premiums in an IUL are paid with after-tax money, so no taxes are due on any cash value growth nor are there any due when the policy owner begins taking distributions from the cash value as tax-free retirement income. IULs also allow the tax-free exchange of one policy for another without triggering income taxes. And when the owner passes away, the death benefit pays out to any loved ones free of any income or estate taxes. In addition, the death benefit has significant statutory creditor and bankruptcy exemptions in most states and it is not required to go through probate either.
These policies can also be used as 401k Alternatives to Deferred Employee Compensation for business owners wanting to enhance their executive bonus plans. This is an especially enticing aspect of the policy for small businesses as there is no contribution requirement necessary for employees.
HOW DOES AN IUL GIVE TAX-FREE RETIREMENT INCOME?
Here’s a quick example of what can be achieved:
- Let’s say a 45 year-old male makes ten annual payments of $46,500 to fund a $1,000,000 life policy with no further premium required.
- At age 65, the policy begins annually creating over $125,000 in non-taxable distributions payable to age 100.
The simple math:
The insured will recapture all $465,000 in premiums in only 3.72 years via $125,000 per year of non-taxable distributions.
Once the premium/basis is recaptured, the policy moves into the “profit-mode” by creating tax-free income to age 100.
Don’t forget that there is a $1,000,000 life policy (death benefit) in force that will also be paid out tax-free!
Note: Costs can vary as to one’s age, gender, amount of desired tax-free income to be distributed, face amount of the policy, and the health of the applicant.
Ready to Learn How You Can Create Retirement Cash Flow You Can’t Outlive?
Schedule a no obligation twenty-minute introductory meeting and learn the secrets of how to put your future income stream into the Zero Percent Tax Bracket. Once we connect, we will send you a FREE copy of the bestselling tax-free income book of your choice to give you a head start in securing your tax-free future!
