4 June 2013 0 Comments

IUL: The Last Word

BD1234-001.jpgAfter spending my last 4 blogs on Indexed Universal Life (IUL) here are my conclusions:

  • IUL is likely to be a better form of permanent life insurance than Whole Life, due to equity investments providing a better long term return than debt investments.
  • Variable Universal Life (VUL) might be considered as an alternative to IUL for those who want to be actively involved in the selection and management of investment accounts and are willing to give up the no-loss guarantee provided by IUL.
  • At the present time the premium for lifetime death benefit guarantees is less expensive with a traditional Universal Life policy than with IUL, but that could change as insurance companies adjust guaranteed premiums upward as a result of reserving requirements and low interest earnings.
  • Changes in IUL costs and crediting formulas could have a negative effect on future policy values, so buy from an insurance company with a strong track record of standing behind the policies they sell.
  • The tri-fecta advantage of tax- free accumulation, tax-free income through withdrawals/loans and tax-free distribution as a death benefit makes IUL very attractive as a supplement to retirement income.
  • IUL performs best when funded with more than the minimum premium.
  • Buy the concept of IUL using the policy illustration as a guideline of possible results, not as an absolute.

Just about all IUL policies include an “over-loan” provision that will keep the policy from lapsing if excessive loans have been taken.  This is important because if the policy does lapse and loans have been made after withdrawing to the cost basis, the total of all those loans would be taxable in the year of lapse.

If you are using IUL as a supplement to retirement and do not have Long Term Care Insurance, then consider a LTC rider attached to the IUL policy.  Do not be confused; accelerated death benefit and critical illness riders are not the same as LTC insurance.  Only a few companies offer a true LTC rider.

After you have purchased enough term insurance to provide for those who depend on your income, have made a 401k contribution sufficient to maximize your employer’s contribution and are ready to save more money for retirement, IUL is an option that should be considered.

Next, it’s back to the basics of term.

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