A key reason that index universal life has become so popular is that it is an excellent product in which to save money now to produce steady cash flow later in retirement. Here are six advantages of using index universal life to save for retirement.
1. The safety of no negative returns.
Investors burned by declining values in the equity, bond and real estate markets now understand the value of a guarantee that their annual returns will never be negative. That guarantee is precisely what index universal life provides.
2. The possibility of high positive returns.
Safe alternatives without investment risk right now are suffering from very low yields. Many are at historical lows, and that makes them unattractive to many savers. With index universal life, if the index performs well over the period measured, the contract can result in an interest credit that is attractive.
3. The ability to create a tax-free cash flow in retirement.
Many other vehicles that can be used to save for retirement create taxation. IRAs and 401(k)s, for example, delay but do not eliminate taxation. In fact, many advisors point out that they encourage clients to save a smaller amount of taxes now in order to pay a much larger amount in taxes later.
Index universal life, on the other hand, can create a totally tax-free cash flow in retirement. Through the use of contract loans, the cash flow can be free of federal, state, and local income taxes. And, it can create a tax-free death benefit. This tax-free feature allows the index universal life product to be more attractive than other alternatives, even if those alternatives create a higher pre-tax return.
For a married couple, the ability to save for retirement usually depends upon the ability of one or both of the spouses to continue working and earning an income. As a result, the death of a working spouse can devastate the best-laid plans. The Life and Health Insurance Foundation for Education reports that a man at age 35 has more than a one-in-six chance of dying before retirement, and a man at age 45 has more than a one-in-seven chance of dying before age 65. Index universal life eliminates this risk by providing a life insurance death benefit.
5. An ability to take advantage of the design of certain insurance products.
The interest crediting caps and participation rates on most index universal life products are higher than the interest crediting on most index annuity products.
6. Insurance for a lifetime .
One perhaps unexpected bonus for a person who uses index universal life to save for retirement is that once he or she stops paying premiums and starts taking cash flow as contract loans, the insurance coverage does not end. In fact, policy holders can often continue to be insured for the rest of their lives without ever having to pay additional money into the contract.
IUL is permanent because the policy is meant to stay in force until the day you die and with proper funding, IUL will do just that.
The premiums you pay into indexed universal life insurance earn interest and grow the cash value of your policy.
There you have it, 6 great reasons to use IUL as an extremely tax efficient way to save for retirement.
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