What if you found out there was a retirement savings option besides your traditional or Roth 401k that allowed you to save money, is tax-free, is unaffected by market shifts, locks in gains, and is congressionally approved? An option under your nose for years but you never heard about before? Would you be interested in learning more? If so, then you need to read on now.
The solution we are talking about is based on life insurance – Indexed Universal Life insurance (IUL). IULs is, in fact, the life insurance industry’s best-kept secret in that much of the general public remains completely unaware of its existence, despite the various benefits it provides for those looking for a risk-minimal means to fund their retirement.
In 2016 alone, sales of indexed universal life insurance policies reached $872 million dollars through the second quarter alone, according to life insurance and annuity analysis firm Wink. For someone looking to either supplement their current company-sponsored 401k or IRA accounts or don’t have a company-sponsored plan in the first place, an IUL policy is a viable option worth considering.
IUL policies’ major advantage is that, similar to an annexed annuity; you can keep all of your gains without experiencing losses. This benefit happens because your money is not invested in the market itself; instead, the policy-holding company credits you an interest rate tied to the performance of a particular index.
Here are some Indexed Universal Life insurance basic tenets:
- Policies can be financed via after-tax or before-tax money, akin to some pension plans
- Assets are shielded against market losses and backed by the issuing company’s full faith and credit. Insurers must comply with ‘legal reserve’ requirements to meet this guarantee because the funds are not FDIC-insured, so be sure to keep that fact in mind.
- Assets (in this case, your money paid into the policy) are market-linked by a pre-selected index, i.e. Dow, Nasdaq, S&P 500, or potentially a mix of several different indices.
- Any gains accrued, being real and interest-bearing (although subject to a cap) are held and not returned. What this means for the policyholder is that he or she, at worst, will accrue a gain of 0 in a declining market. However, none of the already accumulated gains or capital invested are lost. You will either make money or nothing, but not lose money in short.
- Historical returns, based upon numbers from various insurers going back nearly thirty years, fall on average between 7 to 9 percent, mean actual return interest rates.
- Income within the policy can be withdrawn before age 59 ½ and is considered “tax-free.” This condition is allowed because the withdrawal is viewed as a loan against the policy’s death benefit, which functions as your collateral.
- The death benefit pays out to your beneficiary tax-free upon your passing.
Because IULs are ultimately insurance policies, they can be customized in various ways depending on your needs and interests. For example, some plans can include features that help cover long-term care needs, which is a subject worth looking into given the steady increase in healthcare costs happening now and into the future.
IULs are also used quite often for estate planning purposes because they offer the ability to tap into accumulated cash over time while still providing the security of a life insurance policy for one’s family after passing. Moreover, their ability to cut out the tax man while withdrawing money is very helpful.
However, because of the many variables that can affect how an IUL is issued, it is important to do your research and often work with a third-party advisor to make sure this investment vehicle makes sense for your long-term goals. A knowledgeable advisor can also assist in helping guide you in putting a policy together that avoids potential pitfalls while maximizing benefits.
Thankfully, our team here at Anderson has years of experience in estate planning, so we are aware of this retirement saving option. If you’d like to learn more about this option, then contact us today for a free 30-minute strategy session to discuss your goals and find out how an indexed universal life insurance policy can help you meet them.