Although many U.S. workers look to their employer’s 401(k) or an IRA to invest for retirement, many have found that the government restraints on these products can impact their goals and expectations for retirement income.
In today’s economy, it’s logical to assume that taxes will eventually have to go up because of the tremendous debt, entitlements for a large portion of the population, and the inability of the federal government to get spending under control.
One method that has become very popular is to invest in isIndexed Universal Life Insurance (IUL) because tax-hungry legislators haven’t stripped the product of its ability to create wealth for the policyholder.
Using Indexed Universal Life from an insurance company like AIG can help hard-working investors circumvent the IRS restraints that impact wealth building and at the same time provide financial protection for surviving loved ones.
What is an Indexed Universal Life Insurance Policy (IUL)?
An IUL is a permanent life insurance policy that provides life insurance protection on the policyholder as well as the creation of an asset (wealth) by linking the cash value account to the performance of market indices like the S&P 500 and the NASDAQ.
Although wealth can be created using traditional universal life insurance, these policies earn a fixed interest rate based on the performance of the insurer’s investments rather than the performance of market indices.
Additionally, when the performance of market indices goes down during a down market, the cash account in the IUL is not diminished because the policy contains a FLOOR rate which means the account cannot earn less than zero percent or higher.
How does an IUL Build Wealth for the Policyholder?
The process for which an IUL can create considerable cash value over time is not nearly as complicated as most people think it is. Like any investment product, it’s all in how you explain it. It simple terms, here is how an IUL works:
- After your IUL has been issued, the company will establish a minimum amount of premium that will need to be paid to cover the death benefit and any fees associated with the policy but most policyholders will pay more than the minimum to create a substantial cash account.
- When the premium payment is received by the company, a portion is used to pay for the life insurance and associated fees and the remainder is placed in a cash account that is linked to one or more market indices.
- At the end of a reporting period (typically each month or each year), the cash account will be credited based on the performance of the selected index or indices subject to the CAP and FLOOR rate in your policy.
What happens in a “down market” when the Indices lose Money?
Unlike traditional investment products used to create wealth over a lifetime, the IUL cash account cannot lose money when the market does because of the FLOOR rate (typically zero) in your IUL policy. For example, if after the end of a reporting period, the market indices you’ve selected show a loss, your cash account would not suffer because your FLOOR rate is typically 0% or higher.
Additionally, your cash value account has an “annual reset” which means you do not have to make up a deficit before you can begin earning the following year.
Here are the customary terms a policyholder should be aware of:
|Index Cap Rate||The Cap rate is the maximum amount of interest the insurer will pay on a selected index.|
|Index Floor Rate||The Floor rate is the minimum amount of interest that will be credited to your cash account after an index period and is announced in advance.|
|Index Period||This represents the period of time during which an Index Credit is calculated. Different companies use different periods but the most common is monthly or annually.|
|Index Participation Rate||In simple terms, the index participation rate represents the amount of a market's gain the insurer will pass along to a policyholder's cash account.|
How Do I take funds from my IUL Tax-Free?
First of all, a policyholder can access funds in the cash account at any time and for any reason. Unlike the 401(k) or IRA, there is no penalty for accessing cash account funds before age 59 ½ or is there a requirement that you must take funds out at age 70 1/2.
When you want to access the funds in your cash account, you do so through policy loans. Since this is a loan (that may or may not be paid back) the money is not considered income by the IRS and is therefore not taxable as income. This means that you can use the wealth that’s been created in your IUL as a stream of non-taxable income during retirement.
Why AIG is a great choice for Indexed Universal Life Insurance
AIG is always one of our agency’s top choices for clients and prospective clients searching for a better way to accumulate wealth for retirement.
Our clients can depend on AIG to stand by their clients and remain prepared to pay favorable interest amounts on their policy’s cash accounts and stay competitive in the marketplace when it comes to Participation rates, Cap rates, and Floor rates.
AIG has maintained very high ratings over their lifetime and continues today to be a highly-rated global insurance and financial services company.
|Standard & Poor’s||A+||Strong|
|Moody’s Investor Services||A2||Stable|
Agents and their clients can look to two Indexed Universal Life products that provide the solutions they need to solidify their goals and expectations when it comes to wealth accumulation.
The Value+ Protector policy is considered a bridge product that provides guaranteed insurance coverage like the GUL and the ability to earn significant cash value over the insured’s lifetime like the Max Accumulator+.
The Value+ Protector focuses on lifetime insurance coverage but is built in such a way that consumers who are looking for interest crediting strategies that will generate significant income for retirement can realize their goals without government interference.
If you are in need of a flexible insurance product that can deliver long-term wealth accumulation that will not be diminished by income taxes that are expected to double over the next two decades, the Max Accumulator+ from AIG should be on your short-list.
With the Max Accumulator+, AIG puts you in the driver’s seat by providing you choices.
- You choose the death benefit
- You determine the premium amount
- You determine the frequency of payment
- You decide how to grow the cash value in your account
If you are in that group of hard-working people that are concerned about what will be available to them when they choose to finally retire and you are frustrated by the constraints the federal government puts on your investment plan, consider an indexed universal life policy from AIG and then give yourself credit for doing the smart thing.