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What is an IUL?

Let’s talk about Indexed Universal Life Insurance and how it could be an important asset to your retirement strategy.

We'll answer the question:

What is Indexed Universal Life Insurance?

Indexed universal life insurance (or IUL) is an insurance policy that’s often useful in retirement. This is because you can fully fund it and therefor it can allow you to generate tax-free* income. It also offers death benefits, because it’s a life insurance policy. An IUL is “universal” life insurance, meaning it can offer more than traditional life insurance policies can. IULs carry other benefits that other life insurance products may not. For example, you may be able to receive a tax-free* income from your IUL while still protecting your cash value.

An IUL may be a helpful addition to your retirement strategy. Essentially, you buy an IUL policy with an insurance company, and because your money is used to buy an insurance product, the issuing company agrees to certain terms. And one of those terms is that your money isn’t at risk of loss in the stock market. Instead your life insurance links to a chosen index, which gives you indexed interest potential on your money. Regardless of market conditions, an IUL may provide protection for your principal.

Indexed Universal Life Insurance Policies Explained

When you fund an IUL, some of the money pays for your life insurance coverage, while the rest is the cash value of your life insurance strategy. After any other costs are taken out, of course. Your cash value may earn a rate of return because an IUL links to an index. It’s also important to note that the index your IUL links to may perform a similar way to the market. Potential interest earnings with an IUL don’t carry the same risks as a market investment, though.

For instance, the S&P 500 index may increase and decrease in a similar pattern to the actual S&P 500. There’s a key difference, however. Your principal doesn’t go down when the IUL index goes down. You can potentially see earnings when the index is up, yet have absolutely no loss of principal when the index is down.

IULs also have some flexibility. You can select a variety of indexes, for example. This was you can somewhat diversify your money inside the IUL. For example, some of your money might have a fixed rate of interest via its index, while some of it in cash value might link to a different index. Of course, there are many options, so be sure to connect with us. We can help you find the right choices for your situation.

What is Indexed Universal Life Insurance

in Terms of Benefits?

IULs are a life insurance product, so of course, they provide a death benefit. But they can also be used as a way to earn tax-free* income. There are options with an IUL that don’t exist with other types of products. The laws and taxes rules surrounding it are different than other retirement strategies. This is because it’s an insurance product. For example, IRA or 401(K) accounts have limits on how much money you can put in each year, while an IUL doesn’t have a cap on how much. Some retirement accounts also have early withdrawal fees, while an IUL doesn’t.

IULs may not offer the large potential earnings of riskier choices, but they do offer a way to keep your money away from stock market risks. They can also give you a tax-free* income strategy. Even when the index that ties into your IUL drops, your principal doesn’t. Your cash value principle remains the same. These life insurance products also work differently than annuities, although they also offer income and protection. Be sure to learn about IULs in addition to other retirement choices.

You may choose to fund an IUL all at once. When you take money from the policy, there won’t be any income tax, and any earnings accumulated in your IUL are also tax-free* income for you. You may be able to lock in your potential gains. Or you may want to be able to pull out money whenever you choose. In this case, an IUL may be something to consider.

grandfather with his granddaughter iul benefits for beneficiaries portsmouth nh
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For the Loved Ones you Leave Behind

Some people use an IUL as a way to protect their wealth for their family. Beneficiaries generally get a larger sum of death benefit than what you put into the policy, and it’s possible that your death benefit increases with time. This depends on several different factors, of course. IULs also don’t require probate and court, so upon your passing, the death benefit simply goes to the person you designate in your IUL. There’s also no tax on the amount they receive.

As with any tax question, be sure to consult a qualified tax advisor. If you have any questions about IULs and how they might fit into your retirement strategy, contact us today. We offer seminars and webinars that can help explain how IULs work. These events are complimentary, so be sure to register to attend one soon!

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