Indexed Universal Life (IUL) Insurance

Indexed Universal Life (IUL) Insurance

(IRC Section 7702A)

Everything we pursue in life has some risk factor. Some risks are known and can be mitigated, while others are unknown or if known cannot be avoided.

When pursuing investment, for example, we generally strive to obtain the highest return to line up with the risk that we are willing to tolerate. However, and unfortunately, gauging exactly the degree of risk associated with a particular investment is very difficult and has no guarantee.

Many studies have been conducted that show that as humans we would rather know or be able to quantify the possible risk, but we have not or might never be able to completely eliminate risk.

Other studies have further shown that there are many gaps between the richest Americans and the middle class, and it is certainly not just an income or lifestyle gap. It is largely the route that middle class Americans take towards saving for the future. According to these studies, in the United States and other developed nations, only a small percentage of people in the middle class would invest in stocks or bonds, even if the money to invest was given to them at no cost. They would be more likely to choose a savings account, with returns below the inflation rate.

The bottom line is higher educated (investment knowledge) investors are more likely to invest in higher return investment vehicles.

Reasons:

1. Lack of Investment knowledge

2. Cannot afford an advisor

3. Upper income individuals can afford to lose money in one investment because they are diversified

4. The middle class believe they do not have enough to invest, and refuse to invest even a small amount

5. Choosing immediate comfort over future needs

6. Not knowledgeable about Risk Diverse vs. Risk Averse

7. The Big One “Taxes”- Taxed when earned and taxed at retirement.

Solutions:

It is counter-productive to detail problems and fail to recommend possible solutions.

1. Start investing, even if it is a small amount

2. Get educated. Information is everywhere. “Seek and he shall find”.

3. Don’t be ashamed, the cost is too great.

4. Do not wait until it becomes close to retirement. Time is a major factor in the equation.

5. Become knowledgeable of other retirement opportunities, like an Indexed Universal Life Policy.

History of Equity Indexed Universal Life Insurance (IUL)

1. Developed in the late 1990’s and introduced in 1997.

2. Transamerica, Minnesota Life and Amerus (now Accordia) were the earliest companies to develop and introduce IULs as part of their product portfolio and the life insurance world.

3. Presently more than Fifty (50) companies offer IULs products.

4. According to LIMRA, the sales of IUL grew by 192%, between 2006 and 2010. IUL continues to lead all products year after year in premium growth.

IUL Opportunity

1. Flexible premium

2. Provides guaranteed death benefit

3. Growth potential

4. Economic downturn protections

5. Living benefits

6. Tax advantage

 How to Determine the Best Solutions?

The process of putting ones financial house in order can be overwhelming and there are a number of variable to consider when doing so. Some of the variables are taxes, inflation rate, education cost, market volatility are just a few.

Four Key Features of an FFIUL

1. Two or more Index Account Options can Proved Growth Potential to Help Outpace Inflation

2. Guaranteed Minimum Interest Rate or “Floor” can Bring Safety Through Guarantees

3. Federal Income Tax-Free Death Benefit to Help Protect Your Family if a Loved One Passes Away

4. Tax-Free Loans and Withdrawals, Tax Deferral on any Earnings, and Tax-Free Transfers can Help Reduce the Effect of Taxes

How it Works?

1. Fixed Accounts

2. Credit a fixed rate of interest

3. Declared by Insurance Company

4. Has a cap rate that vary by strategy

5. Indexed Strategies

6. Formula used to calculate the interest credited to the life insurance policy

7. The interest credited is linked to the performance of one or more indices

8. Not invested directly into any stock market.

Tax Benefits

1. Tax Free Death Benefits

2. Public benefits of the life insurance has led to favorable tax treatment

3. Most life insurance death benefits are income tax free

4. Tax advantaged loans to supplement retirement

5. Must meet guideline premium or accumulation test.

6. A policy that fails either of these test may be poised to lose favorable treatment for taxation

7. When a policy fails any of the above mentioned test, it is considered a MEC (Modified Endowment Contract, and will be taxed as interest, similar to an annuity.

Note: If a policy is transferred for value, the portion of the death benefit that represents gains may be taxed.