Shelter taxable assets, provide market growth while protecting the principal, and then use the savings in retirement or pass it on as legacy with an IUL investment.
Indexed Universal Life (IUL) benefits can be divided into four categories: Asset Growth, Asset Safety and Access, Tax Benefits, and Insurance Protection.
Asset Growth: IUL investment allows you to realize market return without being directly invested in the market. IUL return tracks that of the market index it follows, subject to a cap, spread or a participation rate (see “How Index Crediting Works” for more details). As a result, you trade off a couple of points in market return for a much lower volatility. The investment is professionally managed. There are no income or contribution limits to funding an IUL. IUL acts like a retirement savings account with no age-based RMD requirements. Our blog “How IUL works” explains an IUL investment using an example.
Asset Safety and Access: Principal protection is a hallmark benefit of IUL. In the same way that the upside potential is limited, the downside risk is also protected from a market downturn. If the market turns negative, the policy value stays flat with a 0% return. This allows IUL returns to stay within a narrower range than the market, resulting in a lower volatility. You can read more about this in the blog “IUL / FIA Credit Strategies and Capital Preservation Explained.” Cash Value (CV) acts like a savings account, providing liquidity through policy loans. IUL policies can be sold on the secondary markets called Life Settlement. IUL assets are typically excluded from access by creditors.
Tax Benefits: IRC 7702 provides IUL with Roth-like characteristics: tax-deferred growth and tax-free withdrawal. IUL is not counted as an asset for college planning, thereby improving the opportunities for financial aid consideration. IUL assets are also excluded when calculating a Medicare premium and provisional income for the taxation of Social Security benefits.
Insurance Protection: IUL is a permanent life insurance policy that provides tax-free death benefit to the beneficiaries. It also provides living benefits for critical, chronic and terminal illness. These benefits are tax-free if they qualify under 101(g). LTC riders are available with some IUL policies. The key differences between the various living benefits are covered in “LTC vs. Chronic Illness Benefits.”
We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at Karthik@FinCrafters.com