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Nolan Stokes was recently published on Forbes with an article detailing some of the reasons that indexed universal life insurance (IUL) is sometimes a great option for people when considering tax-advantaged strategies.

Here are some of the points Nolan made:

Unlike term insurance, which ends at a certain age, indexed universal life is permanent.

IUL offers a combination of a death benefit with a cash value portion of the policy. In addition to flexible premiums, principal protection and index-linked growth, IULs can offer a variety of other benefits. For example, an IUL can be used as a vehicle for retirement income.

Retirement income can be accessed in the form of loans from an IUL policy during retirement. Because the policyholder owns the policy and is funding the cash value portion with the premiums, the cash value is available to be borrowed from. Furthermore, as the premiums are paid with post-tax dollars, that cash is available as a tax-free loan. Though those loans do charge interest, they can often be recovered by the interest or gains paid to the policy, or they can be taken from the death benefit.

Although the cash value portion of an IUL policy is credited interest based on the performance of a selected stock market index, such as the S&P 500, indexed universal life is an insurance contract not actually invested in the stock market. Therefore, unlike variable life, IUL is not subject to market risk. That means that policyholders can participate in stock market upside without being subjected to the same downturns they’d face in, for instance, mutual funds, exchange-traded funds or variable life insurance policies.

Both the growth and the protection of principal are guaranteed by the claims-paying ability of the issuing insurance company, therefore it’s important to choose the issuer carefully. You may want to contact a financial professional to give you more information about the insurance company’s rating and financial strength.

Indexed universal life can come with caps. While you have the potential to participate in market upside, you won’t always experience the same rate of return you would with a market investment. You may be capped at a specific “participation rate,” which is an important number to be aware of before purchasing an IUL.

IUL policies are customizable, potentially allowing the policyholder to add additional riders to cover more benefits. For instance, coverage for terminal or chronic illness, guaranteed insurability or an accelerated death benefit. You can also turn your IUL into a life insurance and long-term care insurance hybrid policy, giving you protection against the cost of long-term care, which can quickly drain your retirement savings. Modern hybrid policies have also done away with the “use-it-or-lose-it” aspect of old long-term care insurance, so you won’t lose the funds that otherwise would have paid for your care. Instead, they would be issued to beneficiaries as a death benefit.


Read the entire article here: 

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Please contact Stokes Retirement Group at (724) 762-4084 for more information. 

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