An IUL policy is permanent life insurance coverage with both an insurance component and a cash value component. The cash value can be indexed to a financial market index, offering policyholders the upside potential that comes with investing in the markets while still retaining the protection of life insurance coverage.A properly designed IUL policy has the capacity to pay a Policy Holder many times more than the money that was put into the policy on a tax-free basis.
Additionally because the insurance company guarantees the insured will never receive a negative return it will usually provide a higher rate of return than standard market portfolio’s such as the S & P 500 over time.. Basically, there is a guaranteed floor to your policy so that if the index goes down 40%, you’ll still receive at least a 0% “guaranteed return” Said another way, “Zero is your Hero!” On the flip side, there is a growth ceiling, usually anywhere from 10 -15%. Therefore, if the S&P 500 goes up by 22%, the cash value of your policy would receive as high as a 15% gain.
Let’s take a ten year snapshot to see how this would have worked with an IUL policy with a 15% Cap rate.
Over the ten year period this policy would have an average return of 8.5%, without any years experiencing a negative return. Whereas the S & P 500 averaged a 7.0% during this period.
Another feature of IUL plans unlike most retirement plans, you don’t have to wait until you are 59 ½ to take penalty-free distributions. In fact, depending on the cash value that has been accumulated you may be able to take distributions only 12 months after your policy has been created. Once you have built up the cash value of your policy, your insurance company can provide you with a loan that has an extremely favorable interest rate. Because these distributions will technically be considered a loan by the IRS, this money is tax-free!
There are many reasons for choosing an IUL for your retirement.
An IUL policy offers you the option of accumulating cash inside your life
insurance policy – cash that you can use for any purpose.