INDEXED UNIVERSAL LIFE INSURANCE (IUL) TAX BENEFITS IndexedUniversal.Life 1-800-743-9221 [email protected] 202110IULTaxBen
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 TABLE OF CONTENTS 04 06 08 08 12 13 16 18 19 20 21 Why are Taxes Such a Risk to Your Wealth Both Before and During Retirement? How High Will Tax Rates Go – and When are They Expected to Rise? Why Consider Life Insurance for Tax Benefits? What is Indexed Universal Life Insurance and How Does It Work? What Other Tax Benefits Can You Get with Indexed Universal Life? How to Generate a Tax-Free Income from an Indexed Universal Life Insurance Policy Even More Advantages of IUL How Much Does Indexed Universal Life Insurance Cost? Are You a Candidate for Indexed Universal Life Insurance? Factors to Consider Before You Purchase IUL Ready to Take the Next Step Towards Reducing (or Eliminating) Taxes on Retirement Savings and Income? 2
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 While many potential risks could reduce the income you generate in retirement, one of the biggest of these is taxes. Throughout your lifetime, taxes have likely impacted nearly every financial transaction you have been involved in, such as income, purchases, and profits earned on investments. The higher your tax liability on income and investment gains, the less spendable income you have available to purchase the items and services you need. Unfortunately, this can have a significant impact on your lifestyle in retirement. Although there is no way to control tax rates, there are strategies that you can put into place that can help you to reduce – or possibly even to eliminate – how much tax you’ll have to pay in retirement. This can result in more financial security in the future. One way to do so – as well as generate tax-advantaged growth on your savings – is through the purchase of indexed universal life (IUL) insurance. While many enticing benefits exist through indexed universal life, it is critical that you seek out the advice of a trustworthy and very knowledgeable expert before you commit to buying a policy. This guide will show you what you need to know. 3
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Why are Taxes Such a Risk to Your Wealth Both Before and During Retirement? Taxes can have a negative impact on your income, savings, and ultimately your wealth throughout your entire lifetime – and possibly even after that if your survivors owe estate tax on the assets and property you leave behind! In addition to being taxed on some or all of the purchases you make, Uncle Sam typically receives a share of your income and investment gains, too. For example, the rate of income you earn and how you file your federal income tax return will determine the amount of taxes you owe. Taxes are also incurred on the realized gains of your investments. The amount you pay in capital gains taxes will depend on how long you owned the asset before selling it. For instance, short-term capital gains tax rates on most assets held for less than one year correspond to your ordinary income tax rates. However, long-term capital gains tax rates apply to assets held for more than one year before selling, depending on the amount of income you earn in a given year and how you file your tax return. Long-term capital gains tax rates are typically lower than income tax rates. Rate Unmarried Individuals Married Individuals Filing Jointly Head of Household 10% Up to $9,950 Up to $19,900 Up to $14,200 12% $9,951 to $40,525 $19,901 to $81,050 $14,201 to $54,200 22% $40,526 to $86,375 $81,051 to $172,750 $54,201 to $86,350 24% $86,376 to $164,925 $172,751 to $329,850 $86,351 to $164,900 32% $164,926 to $209,425 $329,851 to $418,850 $164,901 to $209,400 35% $209,426 to $523,600 $418,851 to $628,300 $209,401 to $523,600 37% Over $523,600 Over $628,300 Over $523,600 2021 Income Tax Brackets and Rates Source: Internal Revenue Service 4
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Tax Rate Single Head of Household Married Filing Jointly Married Filing Separately 0% $0 - $40,000 $0 - $54,100 $0 - $80,000 $0 - $40,000 15% $40,001 - $445,850 $54,101 - $473,750 $80,001 - $501,600 $40,001 - $250,800 20% $445,851 or more $473,751 or more $501,601 or more $250,801 or more Long-Term Capital Gains Tax Rates (in 2021) Source: IRS.gov Although some investors and retirees feel that any amount of tax is “too much,” the current rates (in 2021) are some of the lowest in U.S. history. Unfortunately, though, tax rates are not likely to remain at these levels for much longer – and this could seriously impact the amount of money you have available to spend in retirement. 5
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Year Rate Year Rate 2018-2021 37% 1950 84.36% 2013-2017 39.6% 1948-1949 82.13% 2003-2012 35% 1946-1947 86.45% 2002 38.6% 1944-1945 94% 2001 39.1% 1942-1943 88% 1993-2000 39.6% 1941 81% 1991-1992 31% 1940 81.1% 1988-1990 28% 1936-1939 79% 1987 38.5% 1932-1935 63% 1982-1986 50% 1930-1931 25% 1981 69.125% 1929 24% 1971-1980 70% 1925-1928 25% 1970 71.75% 1924 46% 1969 77% 1923 43.5% 1968 75.25% 1922 58% 1965-1967 70% 1919-1921 73% 1964 77% 1918 77% 1954-1963 91% 1917 67% 1952-1953 92% 1916 15% 1951 91% 1913-1915 7% Top Federal Income Tax Rates 1913 – 2021 Source: https://www.irs.gov/statistics/soi-tax-stats-historical-table-23 How High Will Tax Rates Go – and When are They Expected to Rise? Both federal and state income tax rates have varied widely for more than a century in the U.S. – with the highest federal rate hitting 94% in the mid-1940s, as well as forty-nine years at 70% or more. Imagine how much income and/or investment profit you would have to generate with tax rates this high just to pay your essential living expenses. 6
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 In 2018, after significant tax reform was passed, the top marginal federal income tax rate of 37% hit taxpayers who had a taxable income of $500,000 or more for single filers and $600,000 and higher for married couples who file jointly. But, while it is anticipated that the 2018 income tax rates will remain in force until the end of the year 2025, it’s anyone’s guess what will happen after that and given the massive size of the United States national debt, it is more than likely that they will go up. In fact, based on President Joe Biden’s proposed tax plan in May 2021, it is possible that the top individual income tax rate could rise to 39.6% by the end of the year (2021), essentially reversing the Trump administration’s tax cuts. The U.S. national debt as of August 2021 stands at more than $28.6 trillion. This equates to more than $227,000 of debt per United States taxpayer. To put that into perspective, this is more than the average U.S. mortgage balance of approximately $215,000 (in 2021). In the year 2000, our federal debt to GDP (Gross Domestic Product) ratio stood at just over 56%. Today though, it has more than doubled to over 125%. Further, the U.S. national debt figure does not include “unfunded liabilities,” such as Medicare/Medicaid and Social Security. These cumulatively add another $2.5 trillion to the tab. One of the ways the U.S. government generates revenue is by taxing its citizens and businesses. In other words, we are paying the tab, and those payments have to come from somewhere. So, for Uncle Sam to reduce the debt that continues to rise, taxes will almost certainly increase. The good news is that you have more control over your income taxes than you might think – and one of the best ways to combat the amount you owe is to use tax-friendly financial vehicles like indexed universal life insurance. 7
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Indexed universal life insurance, or IUL, is permanent life insurance that provides death benefit protection and a cash value component. Unlike whole life or even regular universal life insurance – which primarily generates low returns in their cash accounts – IUL primarily generates its return based on the performance of one or more underlying market indexes, like the S&P 500. This means that you have the opportunity to boost your returns, possibly even doubling or tripling them in comparison to other types of permanent life insurance (as well as compared to other “safe” money investments like CDs and bonds). In the case of indexed universal life insurance, in policy contract years, when the index (or indexes) being tracked performs well, a positive return is credited to the policy’s cash value – typically up to a preset maximum limit. The crediting methods used with indexed universal life insurance may include one or more of the following – and in some instances, a combination of more than one: Cap(s) Participation Rate(s) Spread(s) Why Consider Life Insurance for Tax Benefits? What is Indexed Universal Life Insurance and How Does It Work? Visit IndexedUniversal.Life The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. You may be surprised to learn that a method for generating tax-advantaged growth and receiving tax-free income in retirement is to set up a specific type of life insurance plan. However, contrary to many people’s beliefs, life insurance can be an excellent investment while offering more than just death benefit proceeds when an individual dies. In fact, some of the most enticing benefits of specific types of life insurance occur when the insured is still very much alive. And you don’t have to love life insurance to become enamored with this type of planning. You just have to like the idea of paying less to the IRS. Because in the end, if you do not use life insurance in your retirement plan, the IRS will receive more. By utilizing a properly structured permanent life insurance policy, you can build up cash value on a tax-deferred basis while at the same time ensuring when the people who count on you financially will receive a benefit that is also free from income taxation. Plus, you may be able to access tax-free cash from the policy to use as an income supplement, higher-interest debt payoff, or any other purpose you decide on. 8
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 No losses are incurred in exchange for potential limits on IUL growth if the underlying index performs poorly in a given contract year. In fact, with many IUL policies, the cash value is still credited with a guaranteed “floor” minimum rate. Therefore, given that there are no losses incurred, there are no negative returns that the account has to “earn back” before the cash value gets back to even – and because of that, the value can continue to build up over time. For example, if an investment that you hold for ten years generates a positive 10% return in years 1, 3, 5, 7, and 9, and a negative 10% return in the alternate years, you would essentially lose money. Any time a loss is incurred, the value must get back to even before generating growth. With IUL insurance, a cap represents the highest rate of growth credited to the policy’s cash value, even if the underlying index (or indexes) has a substantially higher return during a given contract year. Therefore, if an IUL policy has a cap of 7%, and the underlying index generates a 10% return for the year, 7% will be credited to the cash value. Conversely, suppose the cap on the policy is 7%, and the underlying index (or indexes) returns 3% for a particular policy contract year. In that case, the 3% is credited to the cash value component for that time period. The insurance company also sets the participation rate on an IUL policy. These rates refer to the percentage of the index’s gain credited to an IUL’s cash value. For instance, if the participation rate is 80%, and the underlying index generates 10% in a given time frame, the cash value would receive an 8% positive return. This is because 80% of 10% equals 8%. 80% participation rate X 10% return on the underlying index = 8% return credited to IUL cash value A spread is also expressed as a percentage. In this case, a certain amount will be subtracted from the generated return from the underlying index(es). For example, if there is a spread of 4%, and the index being tracked returns 10% in a given contract year, 6% will be credited to the cash value because 10% minus a 4% spread equals 6%. 10% return on the underlying index – 4% spread = 6% return credited to the IUL cash value 9
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 End of Year Gain or Loss Value of Account 1 10% $1,000.00 2 (-10%) $990.00 3 10% $1,089.00 4 (-10%) $980.10 5 10% $1,078.11 6 (-10%) $970.30 7 10% $1,067.33 8 (-10%) $960.60 9 10% $1,056.66 10 (-10%) $950.99 End of Year Gain or Loss Value of Account 1 7% $1,070.00 2 0% $1,070.00 3 7% $1,144.90 4 0% $1,144.90 5 7% $1,225.04 6 0% $1,225.04 7 7% $1,310.79 8 0% $1,310.79 9 7% $1,402.55 10 0% $1,402.55 Investment with Alternating 10% Positive and 10% Negative Returns IUL Policy with Alternating 7% Positive and 0% Negative Returns Comparing the returns of an IUL policy, and using a hypothetical return of 7% per year, if the underlying market index gained only 7% instead of the 10% in the risk-based scenario above, but avoided losses in the other five years due to the guarantees associated with IUL policies, the cash value would continue to perform in the positive. In this case, all of your previous gains – along with your principal in the cash component – cannot be lost. 10
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Therefore, the principal protection, in years where the underlying index performs poorly - coupled with the tax-deferred gains in an IUL policy, allows the cash value to grow and compound exponentially, even if your investment grows more slowly in ‘good’ markets. In turn, an IUL can potentially outperform a fully taxable investment that invests directly in the stock market. Tax-Deferred versus Taxable Growth $300k $275k $250k $225k $200k $175k $150k $125k $100k 0 5 10 15 20 25 Years Tax Deferred Fully Taxable The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. Visit IndexedUniversal.Life 11
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 What Other Tax Benefits Can You Get with Indexed Universal Life? So, in this instance, if you took a withdrawal from the policy in Year 5, you would incur a 4% surrender charge. (It is important to note that many life insurance policies allow the withdrawal of a certain amount – typically up to 10% per year – without penalty. This is the case, even during the surrender charge period). There is also another potential ding that you could incur when making withdrawals from a permanent life insurance policy. If you take such withdrawals before you have turned age 59 ½, the IRS will charge you an additional 10% “early withdrawal” charge. Given all of the potential charges on life insurance cash value withdrawals, you may end up receiving only 50% of your money to use as net spendable income. But there is a way to avoid taxes, surrender charges, and IRS early withdrawal penalties when accessing money from an IUL policy. This is through a tax-free policy loan. Example of Life Insurance Surrender Charges and Surrender Period Policy Year 1 2 3 4 5 6 7 8 9+ Surrender Charge % 8% 7% 6% 5% 4% 3% 2% 1% 0% Building up tax-deferred gains is just one of the tax-related benefits attained with indexed universal life insurance. Another is a way to access tax-free cash from the policy – without incurring a surrender or early withdrawal penalty. Typically, any permanent life insurance policyholder is allowed to make withdrawals from their cash value. This creates some liquidity and a way to access cash in an emergency. In most cases, though, taking a withdrawal can be an expensive way to access funds because there are several charges that you could incur, such as: Taxes Surrender Charge IRS Early Withdrawal Penalty Because the gains on permanent life insurance policy cash values are tax-deferred, Uncle Sam will eventually want to get his hand on his share of the money. So, if you perform a withdrawal from your permanent life insurance policy, it will likely be taxable. But that’s just the beginning as it pertains to the cost of getting your money. If you make withdrawals (or cancel the policy altogether) during the surrender period, you will incur a surrender charge. This type of early withdrawal penalty compensates the insurance company during the first several years of the contract. Typically, life insurance surrender penalties will last anywhere from just a few years up to 10 years (or more). The amount of this charge, however, will usually decrease over time until it eventually disappears. 12
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 How to Generate a Tax-Free Income from an Indexed Universal Life Insurance Policy The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. Visit IndexedUniversal.Life Because it can be “expensive” to withdraw funds from a permanent life insurance policy (in turn, reducing the amount of money you have to use from the withdrawal), many policyholders take an alternate route for accessing money from their accounts. This is done by way of a tax-free loan. Although many people do not like to take on debt, a loan from an IUL policy could be rather enticing. One reason is that you’ll have use of 100% of the money you access in this way, as there is no tax due on the borrowed funds. In addition, you are technically borrowing from the insurance company and not directly from your policy’s cash value. Therefore, interest will continue to be generated on the total amount of the cash in your plan. For instance, if your IUL policy has a cash value of $80,000 and you borrow $40,000, the return on your cash component is still determined, based on $80,000. As an additional bonus, even though interest will accrue on the loan’s outstanding balance if the loan has not been paid back in full by the time the insured passes away, the balance will simply be paid off using the proceeds from the death benefit. (After that, the life insurance component of the IUL will pay the remainder of the death benefit to the beneficiaries named in the policy). You could also have the opportunity to receive the money cost-free, as well as tax-free. This is because, even though the insurance company will charge you an interest rate on the borrowed funds, it could be offset by the interest that your money is continuing to earn. As an example, if the insurance carrier charges you 2% (which is quite possible, as life insurance policy loans will often have a lower interest rate than traditional loans from banks and other lenders), and the money in your cash value is also earning a 2% rate of interest. You have just secured a no-cost distribution. Before you take any cash from an IUL policy, it is highly recommended that you work with an IUL expert to structure your policy and loan, ensuring all of your required parameters are met and you obtain the best rate(s) possible. For instance, for some people – even seasoned investors – the difference between 1% and 2% might seem somewhat insignificant when it comes to borrowing money. But in reality, it can make a tremendous difference in the amount of cash that you can safely access from your indexed universal life insurance policy each year, as well as how long you can continue to borrow before the plan no longer has cash available. Therefore, it is essential that you set up, and take distributions from, a plan created by someone well-versed in this specific area of life insurance planning. Otherwise, trying to do it yourself could end up costing you in the end. 13
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Age Year 2% Spread Loan 1% Spread Loan 0% Spread Loan 65 1 $75,000 $75,000 $75,000 66 2 $75,000 $75,000 $75,000 67 3 $75,000 $75,000 $75,000 68 4 $75,000 $75,000 $75,000 69 5 $75,000 $75,000 $75,000 70 6 $75,000 $75,000 $75,000 71 7 $75,000 $75,000 $75,000 72 8 $75,000 $75,000 $75,000 73 9 $75,000 $75,000 $75,000 74 10 $75,000 $75,000 $75,000 75 11 $75,000 $75,000 $75,000 76 12 $75,000 $75,000 $75,000 77 13 $75,000 $75,000 $75,000 78 14 $75,000 $75,000 $75,000 79 15 $75,000 $75,000 $75,000 80 16 $75,000 $75,000 $75,000 81 17 $75,000 $75,000 $75,000 82 18 $75,000 $75,000 $75,000 83 19 $75,000 $75,000 $75,000 84 20 $75,000 $75,000 85 21 $75,000 $75,000 86 22 $75,000 $75,000 87 23 $75,000 $75,000 88 24 $75,000 89 25 $75,000 90 26 $75,000 91 27 $75,000 92 28 $75,000 93 29 $75,000 94 30 $75,000 Total Income: $1,425,000 $1,725,000 $2,250,000 Total Cost: $825,000 $525,000 $0 Net Cost to Borrow From an IUL The analysis assumes a cash value of $1,000,000, an annual loan amount of $75,000, and a growth rate of 7.5%. 14
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 By accessing tax-free loans from your life insurance retirement plan, you gain another excellent benefit. These funds will not negatively affect the taxation of your Social Security income. Many people don’t realize that Social Security Benefits could be taxable. The amount of your Social Security benefit subject to taxation will depend on a couple of factors. Such as your age when you file for Social Security, whether you have other income sources (including wages, self-employment income, dividends, interest, and/or other taxable income that is required to be reported on your annual tax return). It will also be dependent on how you file your federal income tax return (i.e., as a single individual or as a married person who is either filing jointly or separately). So, depending on whether you file as a single or married taxpayer and how much you earn from other sources, you could have up to 85% of your Social Security benefit taxed. In this case, for instance, you will have to pay tax on a percent of your Social Security benefits (in 2021) if you meet any of the following criteria: • You file a federal tax return as an individual, and your combined income is: o Between $25,000 and $34,000 (up to 50% of your benefits may be taxable) o More than $34,000 (up to 85% of your benefits may be taxable) • You file a joint tax return, and you and your spouse have a combined income that is: o Between $32,000 and $44,000 (up to 50% of your benefits may be taxable) o More than $44,000 (up to 85% of your benefits may be taxable) • You are married, and you file a separate tax return. *Note that your combined income equals your adjusted gross income plus any nontaxable interest earned, plus one-half of your Social Security benefits. While there are several sources of income that the IRS counts towards the earnings limit to determine whether or not – or how much – your Social Security benefits will be taxed, the money that you borrow from a life insurance retirement plan will not be included in this calculation. Income that comes out of a cash value life insurance policy – regardless of whether it is a withdrawal or a loan – will not subject your Social Security income to taxation. This, in turn, can allow you to keep more money in your pocket. 15
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Even More Advantages of IUL While tax-deferred growth and tax-free access to cash are two key benefits of owning indexed universal life insurance, there are several other advantages, too, (depending on the policy), such as: • Terminal / Chronic Illness Waiver. With many IUL policies, you can access a portion of the funds penalty-free if you have been diagnosed with a terminal and/or chronic illness. • Long-Term Care Waiver. Many indexed universal life insurance policies will also allow policyholders to access funds if confined to a nursing home for at least a certain amount of time (such as 90 days). This, in turn, can help you to keep other assets intact, and as such, used for their originally intended purposes. • No income limit. Unlike a Roth IRA, there is no income limit for indexed universal life insurance policy participants. This means that higher income earners can still have the opportunity to use this type of savings and income planning for retirement. • No age limit. When taking a tax-free loan from an IUL policy, the IRS will not penalize you for taking distributions before age 59 ½. Therefore, if you opt to retire early and/or you wish to use the funds for other purposes, you can do so without Uncle Sam coming for his share. • No contribution limit. Also, unlike IRAs and employer-sponsored qualified retirement accounts, there is no limit on how much you can contribute to a life insurance policy each year. So, even if you have “maxed out” your yearly contributions to IRAs and 401(k)s, you can still contribute to your life insurance policy. • No Required Minimum Distribution requirements. Unlike the traditional IRA and 401(k) plans – which now require that you start taking distributions from the plan at age 72 - there is no such rule with indexed universal life insurance. So, if you don’t need the money, it can remain in the policy’s cash value and continue to grow on a tax-advantaged basis. • Protection from creditors. In many instances, the money in your life insurance policy’s cash value is protected from creditors. Therefore, even in a lawsuit or other situation that could threaten your assets, these funds will typically be safe. • The plan is considered to be “self-completing.” Because of the death benefit associated with indexed universal life insurance policies, these plans are considered “self-completing,” which means that if the policy owner passes on, the death benefit will still protect the beneficiaries financially with the policy’s income-tax-free death benefit. • Funding mechanism in a business succession plan. Indexed universal life insurance could also be used as a funding mechanism for business succession planning. For example, a company will purchase life insurance coverage on executives and/or other high-ranking individuals with a key person plan. The business is named as the policy beneficiary. Then, the company pays the death benefit if a key person passes away while the life insurance policy is still in force. The funds, in this case, can be used for keeping the business afloat until a replacement is found or until the business is ultimately sold to the right buyer. 16
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 It may also be possible to further “customize” an indexed universal life insurance policy by adding one or more riders to it. For instance, depending on the particular plan, some of the standard riders that insurance companies typically offer include: • Waiver of Premium Rider – The waiver of premium rider will allow the policyholder to stop paying premium payments if they become critically ill, seriously injured, or disabled. (Based on the actual policy and the rider, other criteria may also need to be met to trigger the waiver of premium). • Accelerated Death and Dismemberment (AD&D) Rider – With the accidental death and dismemberment, or AD&D, rider, a benefit is paid if the insured dies or loses a limb or digit (which may include eyesight, hearing, or speech) in an accident. • Disability Income Rider – This rider provides a supplemental income benefit if you become disabled, as defined in the policy. The income payment is usually stated as a percentage of the policy’s death benefit. So, for instance, in this case, if the face amount of the policy is $100,000, then the monthly income paid out would be $1,000. • Guaranteed Insurability Rider – The guaranteed insurability rider allows you to purchase additional life insurance at a time in the future without the need to prove your insurability (such as per your health condition). Generally, the guaranteed insurability rider will only allow the purchase option(s) to take place at pre-specified times and/ or for various life events, such as the insured getting married or having a child. This rider may be a viable option if you cannot afford a large amount of life insurance at this time but will need to increase your coverage later on. In some cases, IUL policy riders will cost an additional premium, and there is no added charge in other instances. The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. Visit IndexedUniversal.Life 17
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 How Much Does Indexed Universal Life Insurance Cost? The Best Results Come From Expert Advice. Discover How You Can Benefit From An IUL Expert. Visit IndexedUniversal.Life If it seems like an IUL policy might be a good fit for you concerning its tax benefits, as well as the financial protection that it can provide, it is a good idea to obtain and compare several quotes from multiple insurance carriers. That way, you can determine which IUL product will be the best and the most affordable for you. Several criteria are typically considered when determining the premium cost for an indexed universal life insurance policy. These factors can include some or all of the following: • Amount of the proceeds/death benefit coverage • Age and gender of the insured at the time of application • Health history of the proposed insured (as well as family health history) • Prescription medications used • Previous and/or upcoming surgeries or medical procedures • Smoking status (including cigarettes, cigars, marijuana, and chewing tobacco) • Occupation • Marital status • State of residence • Other life insurance coverage in force (and the amount) • Insurance carrier In addition, you may also undergo a paramedical exam where you will provide additional health-related information and submit a blood and urine sample so it can be tested for various health conditions. (This way, the insurance carrier can better understand how much risk it may take if you approve the coverage). 18
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Are You a Candidate for Indexed Universal Life Insurance? It may seem like a win-win situation with all the many advantages that indexed universal life insurance can provide. But even so, these policies are not suitable for everyone. Further, not all IUL policies are the same, so it is essential to compare several options with the assistance of a very knowledgeable professional. Typically, though, you want to consider this type of coverage if you: • Want to secure permanent death benefit protection for your loved ones and/or business succession requirements • Are looking for additional alternatives that can generate tax-deferred growth (even if you have already “maxed out” the annual contributions to an IRA and/or employer-sponsored retirement plan) • Want the opportunity to generate higher growth than whole life and regular universal life insurance can offer, yet also want to have the assurance that principal will be safe – even if the stock market incurs a “correction.” • Are in relatively good health (in order to qualify for the death benefit coverage) • Want to have some additional alternatives for tax-free retirement income 19
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Factors to Consider Before You Purchase IUL There are some critical factors to consider before purchasing an indexed universal life insurance policy. These should include the following: • Age • Marital status • Children and/or grandchildren • Aging parents (who may require financial or long-term care support) • Income-earning ability of the insured • Income-earning ability of the insured’s spouse or partner • Financial goals • Outstanding debts • Household expenses (if a spouse, partner, and/or children will remain in the home) • Other savings and/or assets that could be used for survivors’ financial needs • Amount of final expenses (including funeral and burial costs) • How long survivors would require income or financial security • Possible estate taxes due • Intended charitable donation(s) • Other legacy needs • Income tax bracket • Income needs in retirement • Other retirement income sources • Contributions to other tax-advantaged plans, like IRAs and/or employer-sponsored retirement account(s) • The “floor,” or guaranteed interest rate on the IUL policy • Any caps, participation rates, and/or spreads associated with the return on the cash value • Index(es) that are tracked in the policy • Financial stability and claims-paying reputation of the insurance company offering the policy 20
202110IULTaxBen [email protected] • www.indexeduniversal.life • 1-800-743-9221 Advantages of Indexed Universal Life Insurance Disadvantages of Indexed Universal Life Insurance Death benefit coverage (paid income tax-free to the beneficiary) Limitations on the growth of the cash value (caps, spreads, and/or participation rates) Low premiums (particularly if the insured is younger and in good health at the time of policy application) Surrender charge(s) on withdrawals from the cash value Flexibility with regard to premium amount and due date (within certain parameters), as well as the underlying indexes that are tracked Surrender charge if the policy is canceled during a preset period Tax-deferred gains in the cash value The premium for the death benefit could go up Opportunity for higher growth as compared to whole life and regular universal life insurance Principal protection in any type of stock market or economic environment No limit on annual contribution to the policy and no required minimum distributions (RMDs) at any age Ability to access cash via withdrawal or tax-free loan Pros and Cons of Indexed Universal Life Insurance Ready to Take the Next Step Towards Reducing (or Eliminating) Taxes on Retirement Savings and Income? Disclosure: Content is not personalized financial advice and should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Tax and legal information provided is general in nature and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Indexed universal life insurance may not be suitable for you depending upon your investment objectives, risk tolerance, financial situation, and liquidity needs. Accessing policy cash value through loans and surrenders may lead to a permanent reduction of the policy’s cash value and death benefit, which may lead to a potential lapse of the policy. There may be tax penalties for distributions prior to age 59 ½.Insurance product guarantees are subject to the claims-paying ability of the issuing company. success. Working with a highly-rated adviser also does not ensure that you will experience a higher level of performance. Please contact the adviser for more information regarding the criteria for any awards or rankings noted. Ratings can be based on client evaluations, professional activity and promotional fees paid by the professional. Given the massive amount of debt and unfunded liabilities, it is likely that taxes in the U.S. will rise in the near future, which could substantially impact how much money you have available to spend on the goods and services you need to purchase in retirement. There are ways that you can planto help reduce – or even to eliminate – the amount of taxes you owe on your retirement income. One strategy is to purchase an indexed universal life insurance policy. In addition to providing you with an option for tax-free income, these flexible plans can also allow for tax-advantaged growth of the cash value, funds for a potential healthcare or long-term care need, and an income-tax-free lump sum of cash for survivors. But even if an IUL policy would appear to fit nicely into your retirement plan, it is crucial to obtain the right strategy. Working with an IUL expert and retirement income specialist can help. We recommend you consider any of the independent experts listed on IndexedUniversal.Life. You can filter by expertise and location while considering past client reviews and ratings. We hope you find this material helpful and successfully generate tax-free income so you can enjoy the retirement you’ve worked so hard for. 21
IUL2021IULvTerm [email protected] • indexeduniversal.life • 800-743-9221 25 Indexed Universal Life [email protected] indexeduniversal.life
indexeduniversal.lifeRkJQdWJsaXNoZXIy MjEyMTc2MA==