What is an IUL?
An IUL (Indexed Universal Life) insurance policy is, well, a type of life insurance policy. With all the different types of available life insurance products, choosing one that’s right for you can seem like a big task. Let’s talk a bit more about life insurance in general before explaining IULs.
Types of Life Insurance
Each type of insurance can help people in different ways. Depending on your situation, you may find one type of life insurance more beneficial than the others.
Term Life Insurance
Term life means that the benefits are available to you for a certain period of time. For example, a 20-year term life insurance policy would require payments each month or year for 20 years. In return, the insurance company agrees to provide death benefits (or other benefits, if you have a policy such as an IUL) if you pass away at any time during those 20 years.
In addition, some term policies actually use a specific age, rather than the number of years, when setting the time period for the policy. For example, you could have a term life insurance policy that provides a death benefit up to the age of 90. In some cases, you could be able to receive some cash benefit, if you outlive the policy. Not all policies offer this, however.
Permanent Life Insurance
With term life insurance, you don't receive a death benefit if you outlive the policy term. Permanent life insurance, however, works differently. Whole life, variable universal life, and IUL policies all fall under this category. With this type of policy, you pay a set premium each year, and your account builds a cash value. In addition, you may receive a dividend or an interest rate, depending on the insurance company and the product.
There are other benefits that make permanent life insurance appealing to some. For example, you can't outlive your benefit. So, you can be sure that the people you want to leave money to will get it. In addition, the death benefits can sometimes be tax-free* and not require probate court in order to get to them. Furthermore, permanent life insurance policies are sometimes used in conjunction with trusts, as part of one overall estate plan.
What is an IUL?
An IUL is a type of insurance policy that provides a death benefit, but also offers several additional benefits, because it’s a “universal” life insurance policy. With an IUL, you can take advantage of stock market returns, without being at risk of losing money. The principal of an IUL is guaranteed,** while the interest rate is based on market conditions. This can be an advantageous situation.
There are many ways in which an IUL insurance product can be beneficial to your overall retirement strategy. Your cash value is protected, since your money is held by the insurance company. As an alternative, you can choose to tie your rate of return to an index. You won’t lose money when the market declines, unlike when you invest directly into an index fund. For this reason, your IUL cash value can generate a reasonable rate of return, over time. By doing so, your policy’s cash value will increase when certain indexes do well, while protecting your money from losses. Whatever the market does, an IUL will protect your money.
Can You Retire Tax-Free* With an IUL?
To help you determine if an IUL could be a viable option for you, we’ve put together some questions you can ask yourself. If any of these questions make you think about your current strategy more deeply, consider reaching out to us. Here at Slate River Financial, we can help you learn more about potentially tax-free* retirement options. Additionally, we can look at your current situation, and help you understand if an IUL could be part of your retirement strategy.
- Do you believe that taxes will be higher in the future?
- If so, do you think you should start preparing now?
- Do you have a way to offset higher taxes in retirement as part of your retirement strategy?
- What will the tax burden be for your beneficiaries?
- Do you have a way to minimize those taxes?
- How much, if any, tax-free* money do you have set aside?
- Given the choice, would you rather pay taxes on some of your money today, or pay taxes at possibly higher rates in the future?
What's Your Strategy for the Future?
Whether you’re looking for protection for your family, have questions about retirement, or simply want to learn more about financial and insurance options, we’re here to help. Slate River Financial is straightforward, honest, and dedicated to your retirement and financial success. Let’s work together towards your future.