5 Reasons IULs are the Best Financial Tool

You have so many investment options for planning your retirement. Stocks, Mutual Funds, ETFs, and more. You can invest in your 401k, you can open an IRA and manage the investments for yourself…..or pay an advisor to do it.

But have you heard of an IUL? IUL stands for Indexed Universal Life, and it is a life insurance contract. “Wait….we were just talking about retirement, then you bring life insurance into the conversation?!?”

Yes, life insurance can be used as an investment for retirement, education planning, and just about anything you would need to invest for.

Let’s go into 5 reasons an IUL might be the best financial tool for you to plan and protect your financial future.

1. An IUL puts you in the driver’s seat.

When you invest in an IUL, you are in control. You see, an IUL is non-qualified. Meaning that you are not held back by low contribution limits or required minimum distributions. Though there are contribution limits to an IUL, they are much higher than a qualified retirement account. If you do max out an IUL and want to invest more, you can simply buy a second IUL. You are not limited by the IRC to how many IULs you can own, and contribution limits are per IUL. Unlike qualified retirement accounts where you are allowed a much lower contribution limit, and you can only choose IRA to accept the contribution.

This is not to say you are in control of the investments, because an IUL utilizes an indexing strategy. An indexing strategy links your funds to the market, however you are not invested directly in the market. This allows you to ride the growth of a specific market index when the market is up. However, when the market goes down, your portfolio does not decline or grow. Essentially, you have 0% gain or decline when market declines. Making zero your hero….. Why is this good?… Because, when the market starts going up again, your portfolio starts growing where it left off before the market decline. Compare that to a regular stock, mutual fund, or ETF portfolio, where the portfolio will decline and rise with the market. So with an IUL, you have a 0% floor, and you will also have a ceiling…usually between 8% and 20% depending on how the IUL is set up.

2. Tax-Free Retirement Income.

This is huge! When you start distributing an IUL, it is completely tax-free. This is because all the money you put into it was after-tax dollars…meaning that income taxes were already paid on these dollars.

Now think about your Traditional 401k or Traditional IRA. These are pre-tax accounts, meaning that you have not paid income taxes on the money you contributed. You pay the income taxes when you distribute the funds. Now answer me this…Do you think your taxes will be higher when you are working and contributing, or when you are older and retired? More often than not, it’s the latter.

Another aspect worth mentioning here is that you will also not be subjected to capital gains taxes when you start drawing funds from your IUL. This is because your funds were never invested directly in the market. Remember, an IUL employs an indexing strategy as specified above. Can’t say that about a 401k or IRA.

3. A properly set up IUL will not only protect you from the financial risk of death, but sickness and injury too.

So an IUL is a life insurance contract. Generally life insurance only offers the policy holder a death benefit when the insured dies. However, some IULs also contain something called living benefits. This means that your IUL can also pay out the death benefit if you get critically, chronically, or terminally ill. It will also pay out if you get critically or chronically injured.

This means that if you become ill or injured and cannot work, you will get paid most of, or up to the full amount of your death benefit. You can use this money however you want to as well. You could potentially seek a more advanced treatment, or use the money to vacation. It’s your money, your choice.

4. Can be used as an education savings account.

Do you use a 529 account to save for your children’s education? Well an IUL can do the same thing. The difference is that you have more control over that money. Where a 529 is a custodial type account, meaning the minor actually owns the money once it is contributed, the ownership of the money in an IUL is completely retained by the parents, and thus can control how much money the student receives.

5. Can be used to start investing for your children’s retirement

That’s right. All of the benefits of using an IUL to invest for your own retirement rings true for your children too. You can structure an IUL with your child as the insured and start their retirement investing from the time they are an infant. Think about the options you can give them. They will already have a sizeable retirement portfolio when they graduate from college. They will be starting with much more at the time their peers are starting fresh. This is one way to build generational wealth for your child.

There you have it. I hope you found value in this article and would love to hear from you.

Curt Rowe