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Ed wrote this article for Ezine Articles.  This site has great information. 

Check them out at www.ezinearticles.com

As a financial planner, I feel like Indexed Universal Life insurance is one of the most misunderstood and underutilized tools and asset classes in the market today. I believe that this is because of the newness of the product itself. Indexed Universal Life (IUL from here on out) has only been around for a little over 15 years. Because of this, most financial advisors don't fully understand it. IUL's came around after they received their education and set their practices. Thus, individuals aren't learning from experts, but rather, they rely on media pundits for any information on these programs. In an effort to further educate you, and promote a wonderful product, I give 5 reasons to buy an IUL.

The first great reason to have an IUL in your retirement portfolio is the fact that these products provide minimum guarantees. Unlike placing your funds directly into the market, these funds are protected from the market. They earn interest in a unique way. Interest is credited based on the performance of a chosen index. Rather than being invested in the actual market, you merely receive a portion of the index return. Again, the worst-case scenario is that you earn 0% in a given year. You can never lose money due to market fluctuations. Each year that you do earn interest, that interest is locked in and becomes part of the principal amount guaranteed to not be at risk to the market. What a great way to plan for retirement. This system of guarantees also removes the risk of retiring at the wrong time, when your account value is low due to market losses. It also prevents catastrophic damage to your retirement due to losses in the early years of your retirement.

In addition to the downside protection, these products can perform very well; often times outperforming the market returns seen in a typical investment portfolio. So you don't have to give up a good return to find a safe haven for your retirement nest egg.

The second great reason for purchasing an IUL is the tax-free death benefit.

Life insurance is often used as a tool in estate planning. It is treated favorably by the IRS tax codes. Often, the funds coming from a death benefit from a life insurance policy are passed on to beneficiaries income tax-free. Indexed Universal Life is no different. It becomes a wonderful tool to pass on assets tax-free. Unlike other retirement options, such as a 401k, the assets held in an IUL pass on without taxes and give you immediate access to the funds, unlike assets held in real estate. It is also very typical, due to the death benefit common in all life insurance policies, that the death benefit will exceed the accumulation value of the account, meaning you not only leave more to your beneficiaries by paying less in taxes, but also because of the higher death benefit.

The third great reason for looking at an IUL is for the incredible supplemental retirement income that can be generated from it. What if you could put an unlimited amount of money into a Roth IRA, pay taxes on the principal now and have an income generated, tax free, for your retirement, and you could even access it early if you wanted? That would be an incredible deal, right? Well, it exists. It's called an IUL. You can create a tax-free income through these IUL's without having to worry about the timing of the market. Rather than rolling the dice of where the tax brackets fall out over your lifetime, why not draw at least part of your income through a program that allows you to fund it limitlessly, and not have to worry about paying taxes on the gains?

This is achieved through policy loans. It's a new concept, but hear me out. Through a policy loan, you are able to draw out an income from your IUL tax-free. Everyone always asks me "what if tax laws change?" Valid question. In theory, it is possible that the laws change and these funds do become taxable, but that would be odd. The government doesn't tax our loans, only the asset by which the loan is guaranteed. Think for example of your car loan... you pay a property tax on that auto, but you don't have to treat the loan from the bank that you used as income because it wasn't income, you have to pay it back. These policy loans function the same way.

Diversification is the fourth reason to purchase an IUL. Since the bulk of your retirement funds are probably in taxed deferred savings accounts, like traditional IRA's and 401k's, IUL's can provide a diversification, not only in asset class, but also in the tax treatment of the account. We typically believe in diversification and have been taught that since our high school years, yet we all have our retirement in the same types of vehicles. All are tax-deferred time bombs with minimum distribution ages and minimum distribution requirements or maximum contribution amounts controlled by the government and current economics in the USA. We are all typically in a blend of stocks and bonds, crossing our fingers that when that day comes to retire, we are up, not down. Hopefully we've picked well, though we be uneducated as can be, and yet we bank on this as our retirement program and a whole industry has built itself around it. Amazing that we've heard this same concept preached for over 2 decades and we're still drinking the kool-aide. I'm not going to tell you to not drink, just try a different flavor for a minute. It should be noted that when taxes go up, and they inevitably will, you will pay taxes on those funds that are in taxed deferred accounts. This can hurt the value of the dollars you have saved in those accounts. There is also a little thing called an RMD. Required Minimum Distributions are what the federal government requires us to withdraw from our retirement accounts, based on our age, as a percentage of our account balance. There is always the possibility of these percentages increasing so the taxes can be collected on these funds. This could also cause you to withdraw funds you don't need. An IUL gives you a great hedge against these potential tax issues.

Finally, the fifth reason to purchase an IUL is because they allow you to work towards becoming your own banker. Have you ever found it odd that you borrow money from a bank even though you have money in the bank? I have. Most IUL's have loan provisions allowing you to borrow from and pay back your life insurance. The nice thing is, by doing this, you pay yourself the interest rather than the bank. You continue to have a retirement fund that is growing and you aren't loosing years' worth of interest to the bank. Think of all the interest you have paid for credit cards, auto loans, your mortgage, etc. You can borrow yourself the money instead and you don't have to worry about the approval process at the bank. Many business owners feel that term insurance is the only type of life insurance for them because they don't want to tie up their money. This is a false assumption. The funds "tied up" in life insurance are not locked up, but rather, provide more access to funds than most investment opportunities. The funds can be borrowed and replaced with relative ease, making it a wonderful program for creating your own personal banking system.

One final little bonus is that your IUL is permanent insurance, as long as it is built correctly and you fund it properly. You'll likely have lifetime coverage, even after stopping your premium payments and taking withdrawals. Long after your term insurance is gone, you'll still have a death benefit to leave those you love.

For these reasons, along with many others, indexed universal life insurance is a great way to help fund your retirement. It is not perfect for all situations, and it is always wise to consult your advisor before purchasing any retirement funding program. That being said, there are five reasons you should give your advisor a call and find out if an IUL is right for you.

(Ezine Articles, 2011; http://ezinearticles.com/?5-Reasons-to-Purchase-an-Indexed-Universal-Life-Insurance-Policy&id=6790878)


 
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One of the most effective ways to fund a retirement plan for people in their 30's, 40's, or even 50's, is through indexed universal life insurance.  The concept is to simply overfund a life insurance policy to accumulate significant cash value.  The main advantages to using this vehicle to fund a retirement plan are the following:

1) Downside protection - Some IUL's guarantee a 3% return every year even if the market goes down and allow for returns up to 14% cap.  This concept has allowed for historical average returns with many carriers of around 8% and guarantees that the portion of your premium allocated to your retirement fund will gain over time! 

2) Tax free income-At retirement - You will have the option to take out annual tax free income!  This is a huge benefit as most of us believe that taxes are very likely going to increase in the future.  Let's assume that you are in a 30% tax bracket at retirement and your cash value accumulation allows you to take out a $70,000 tax free annual income.  This would be the equivalent of $100,000 that you have to pay taxes on!!

3) Death benefit protection - All along the way, you will have permanent death benefit protection to take great care of your family in the event that something were to happen to you prematurely or later in life!!


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So I mentioned Indexed Universal Life (IUL from here on out) as a great way to “be your own personal bank” in the last article I wrote.  I wanted to take a minute and discuss that now. 

We all know debt is a very touchy, and should be avoided as much as is reasonable.  Banks make an awful lot of money collecting your interest.  Maybe, instead, you should pay cash, right?  But what about the interest you lost by not investing that money instead?  So what should you do?  I’m saying don’t borrow from the bank, don’t pay cash…  How about we start treating our personal finances like we were a business.  Let’s set up a capital fund and use the interest earned by that fund to pay for your new car. 

You have to realize that this setup, like anything good, takes some time and discipline.  No get rich quick schemes here.  You probably want to allow for a good 7 years or so to build up the capital.  Let’s have you put in $35,000 over the first 7 years.  I told you it wasn’t quick.  From then on, you’re going to continue to save for retirement in this same account, but now you’re only putting in $3,030 a year.    Now, in year 8, you purchase your first vehicle through this program.  Let’s assume you stayed pretty mild on the price and purchased a car for $10,500.  You could do this now, every 4th year until retirement.    At retirement, depending or your rate of return in this program, you could have a retirement of tax -free income of $50,000 per year.  Find me a bank auto loan program that will do that for you!

So when you look at the numbers, taking the time to capitalize your auto fund allows you to then consider your car payments each month as a retirement contribution.    Did you catch that?  We just turned your car payment into retirement income!

So, the next question, and the last one I’ll cover in this article, is: What is the best type of account to do this?  I feel that IUL’s are the best-suited account type out there to achieve this strategy.  Compared to the stock market they function better because of lower volatility.  You could lose your capital fund in the market and have to re-fund the base of your plan.  Compared to CD’s, which will give you that retirement amount for 5 years or so, an IUL will give you that money indefinitely, if constructed properly and perfectly funded.

A special thanks to Nelson Nash and his expertise in providing the groundwork for this program, and to Patrick Kelly and his efforts to use his writing abilities to share this wonderful cure for Americans’ financial woes.  It is incredibly powerful.  It has the ability to change your financial life and fix your retirement dreams.  It truly is something that can work for nearly everyone and doesn’t involve Wall Street and it’s fees and volatility.  There are lots of assumptions I made in the example numbers, so call an expert to discuss this program for your individual set of circumstances.  I am one of those experts you can call.  It just might be the most important financial phone call you ever make.


 
 
So we’ve been enjoying tax season about as much as anyone else in this country does.  We’re trying not to procrastinate it to the very end, but it’s so tempting.  In talking with our CPA, we asked her point of view on investing in life insurance.  We were surprised by her response.  She actually prefers Indexed Universal Life to mutual funds.  Who knew! 

I’ve taken the notes from our conversation and simplified it down to 3 reasons that your accountant, and ours, chooses indexed universal life.

Reason 1: Taxation at retirement…or not.

Mutual funds can cause retirees to exceed the allowable limits on total income, causing the taxation of up to 85% of their social security income.  Growth within IUL’s are tax-deferred and also have the ability to be taken out as tax-free income through policy loans.  The policy holder gets to control his or her income that is reportable to the IRS.  Not the case for mutual fund owners.

Reason 2: The KISS method

We’ve all heard of the Keep It Simple, Stupid analogy of how to make it through life.  It applies to retirement income planning too!  Mutual fund management requires the fund manager to reallocate the fund regularly, keeping most of us average Joe’s in the dark as to how they really function.  Little tricks like selling long-held stocks to reduce a fund’s loss at the end of the year skews numbers and makes it hard keep track of how you’re actually doing; not to mention the tax consequences of such sales.  Mix that in with the required record keeping of owners of mutual funds, and things aren’t so simple anymore.  Redemptions, values, commissions, etc., need to be kept copiously to combat IRS audits.

An IUL has an annual statement with all of the information needed for the IRS.  This information is maintained for you by the insurance company and available for you at any time. 

Reason 3:  Accessibility

Sorry, no funny title for the third reason, but this is perhaps the best reason of all.  Most of us experience times in our lives when finances are a bit, shall we say, snug. Yeah; snug like sumo wrestler trying to fit on a roller-coaster ride.  When these times occur, accessing funds in an IUL can be penalty free and tax free.  Funds held within a mutual fund can be reduced by as much as 30%(20% withholding and 10% early withdrawal, if in a qualified account).  Funds within an IUL can be accessed, via policy loans, without taxes and without penalties.  These loans don’t even need to be repaid. 

Maybe it’s time you talked to someone about the benefits of IUL’s.  I mean, if we can’t trust our accountant, who can we trust? 


By: Ed Kinsey