Most of us are familiar with traditional life insurance. A policy that pays a benefit when someone dies. However, the life insurance industry has evolved much like the phones we carry in our pockets have evolved. The phone we carry in our pocket is a minicomputer that is stronger than the one that was used to send astronauts into outer space. They no longer just to make phone calls, but provide access to the literal world at our fingertips.
Life insurance has also gone from solely paying on death, to now covering the 3 things that we should all be prepared for when it comes to our finances. When it comes to life and our finances, we want to be prepared for if we do die too soon, if we get very suddenly ill or need long term care or if we live a long time and actually get to enjoy those sunset years.
An index universal life offers what we call “Accelerated Death Benefits.” These are living benefits that you can access while you are doing just that – living. If you suffer a critical illness, such as a heart attack, life threatening cancer, stroke, organ failure, you can have access to the insurance part. Yes, you do have health insurance, but what if you are unable to work, or what if you lose your job, or what if your medical bills are predominantly covered but your living expenses are not?
These living benefits will allow you to access the insurance part, what is traditionally considered the death benefit, to pay for whatever your family needs because you suffered a critical illness. It can also function as a type of long term care, if you should ever not be able to perform basic activities of daily living – those are classified as bathing, dressing, eating, toileting, getting in and out of a chair or bed, and taking medications, then the same access is granted. You can use those funds to pay for home health care or for a facility without going into the assets you have been working hard to build.
And finally, if you live, you will have access to funds tax free through the cash value that has accumulated inside the policy. Life insurance is one of the few things written into the IRS tax code that is actually tax free. Since the benefit of life insurance is tax free when you die, the cash value that accumulates inside the policy can also be accessed tax free.
An index universal life is a three in one and covers all of those crucial things. 40% of foreclosures and bankruptcies are due to medical conditions. Don’t let life’s unexpected curveballs cause you to have to use all of your hard earned assets and cause unnecessary financial struggles
As the name suggests, IUL is a form of universal life insurance.
A universal life policy is designed to be a permanent life insurance that has a tax free savings account. Every month or year you make a premium payment, part of that goes to pay for the cost of the insurance and part of it goes into your savings account. There are different types of universal life policies; the interest credited can be a fixed rate, it can follow an index like the S&P 500 or Nasdaq 100 or it can be a variable rate. You as the policyholder can decide what interest crediting strategy makes sense based on your goals and risk tolerance.
This is not an investment vehicle, this is a life insurance policy that can be structured to grow money tax free and it allows you to have access to it at any age, and not just wait until 59 1/2 years old like traditional retirement accounts. If you opt for an Index Universal Life policy then it is also contractually guaranteed to never lose money when the market goes through its normal and frequent fluctuations.
There are pros and cons to all financial vehicles. The pros are the tax free growth, the contractual guarantee to never lose money, the access to the funds if you become critically ill and the life insurance that will be left behind to provide that legacy for your family. The con is that it is also life insurance. There is a cost of life insurance because a death benefit must be paid at the end, that is what allows for the tax free growth and access. Some people will not be healthy enough to qualify for this particular vehicle or have enough time to allow it to grow. It is not a vehicle that is meant for everyone, but if tax free savings, growth and leaving a legacy is something that resonates with you, connect with one of our agents who can walk you through the process to see if it makes sense for you and your family.
It is a tax free savings vehicle wrapped inside a life insurance policy. Therefore every month or every year you pay a premium, part of that money goes to pay for the cost of the insurance and part of the money goes directly into your savings account.
The funds that are deposited into your savings account grow based on the indexes.
Because it is a life insurance policy you must go through the eligibility process and be able to answer medical and lifestyle questions.
The number one reason we get life insurance is to make up for loss of income. Whether you are a single parent household, a 2 parent household or a multi-generational household you pay bills and raise a family with the income that is coming in. In the worst case scenario, if someone were to die yesterday, that is a dramatic and drastic life change for the family left behind. In the early years, it can help provide a safety net as assets are being built and financial responsibilities are increasing. In later years, it can play a role in estate planning and ensuring that loved ones are not burdened with estate taxes or other liabilities and can build generational wealth.
Life insurance is one of the few things written into our IRS tax code that can be tax free through Internal Revenue Code 7702. Therefore, the cash and savings growing within a life insurance policy is also tax free when taken out properly.
Insurance companies dictate the minimum that must be paid for a life insurance benefit to pay out and the IRS actually determines the maximum that can be contributed to a life insurance plan.
Most people are surprised to hear that the government or the Internal Revenue Service is involved in how much can be placed in a life insurance product.
Forbes has called it, “the rich man’s Roth” in this article of the 5 Legal Ways to have Tax Free Savings. – Read more.
Financial literacy is not something that is widely taught in schools, if at all. There are strategies and loopholes written in the IRS tax code, it is simply a matter of awareness to know how you can take advantage of those strategies as others have before you.
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