Life Insurance

IUL Policies For Retirement

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What is an IUL Policy?

An indexed universal life or IUL policy is a type of universal life insurance policy that provides a death benefit. In addition to death benefits, IUL’s offer the following benefits: 

  • The protection of financial assets
  • Options that are flexible
  • Access to the cash value of the policy

Universal Life Insurance Comes In Various Forms

There are several types of universal life insurance.

One type is inflation-adjusted fixed rates. Another type is the variable rate, which invests in the stock market, so it carries a greater risk. 

Indexed universal life insurance has some advantages over other universal life insurance policies. IULs offer higher growth potential than universal life insurance. This may be an attractive option for those looking for flexible insurance. They can also provide some of the upside potentials of the stock market but without the risks. This is because, in an IUL, the principle is guaranteed*, while the interest rate is determined by market conditions. Therefore, it can be an advantageous combination. Our team at MtD Financial can help you explore options based on your needs.

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Overview of How an IUL Policy Works

Premiums cover a portion of the cost based on the life expectancy of the insured. The remaining amount is added to the cash value. Though an IUL policy does not directly invest in the stock market, your money may earn interest based on an index. The cash value is credited with interest when the index increases. Also, some policies let you select more than one index instead of just one. That allows you to choose your IUL with greater flexibility. 

There are several ways to allocate your money. Certain policies earn a fixed interest rate, while others fluctuate based on an index. Cash may also earn interest based on the index. You can also earn interest on the third part of your money if you decide to contribute to an additional index. 

Lifetime IUL Benefits

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Your retirement strategy can benefit from indexed life insurance in several ways. 

The insurance industry protects your money from loss. Your return rate can also be tied to an index. Although IULs are linked to indices, they are not directly invested in them. Because of this, if the market falls, you will not lose money. As a result, you can earn a good rate of return** on your IUL cash value. 

Because an IUL is an insurance product and not an investment, they may have more flexibility. The tax laws for traditional retirement accounts and IULs differ. IUL policies do not have annual contribution limits like 401(k)s or IRAs. In addition, you can withdraw the cash value of an IUL policy at any time without having to pay any penalty. Also, there are no minimum distributions (RMDs) required at 72.

Another advantage is that you can pay overtime or take a lump sum to finance the policy. Because it is fluid, you can also use it as income without paying taxes on it. The distributions from IULs are also tax-free*. Furthermore, you can access your death benefit while still alive and use it to pay for long-term care tax-free if necessary. 

Your family may inherit some of your wealth when you pass away. As the index increases, the death benefit may increase as well. Therefore, your beneficiary usually receives more than the original contribution. Additionally, they are entitled to nontaxable, permanent benefits that are not subject to probate. 

If you’re in West Chester, Stokie, or St. Charles, Illinois areas, connect with us to discuss if indexed life insurance is right for you.

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