Option C: The Use of Indexed Universal Life Insurance

We all remember when our household phone looked like this.

You may have even been like me and been super proud to own one of the FIRST cell phones when they came out looking like this and were like carrying around a cinder block with an antennae from NASA attached to it.

But now things have advanced, and we’re all super savvy with these little half-ounce things we call phones or smartphones. Just about everyone has one these days, we can’t get our kids or our grandkids off them, and you can’t pull up at a stoplight without seeing someone on one of them. In fact, if I were to recommend a future field to get into, it would be spinal corrective surgery because here in another 15 years, the entire American population is going to need it from all of our looking down into our laps.

But all that said, these are phones, right? We all agreed on that? But let me ask, how much time do the majority of you spend using your phone…as a phone? If we’re not just using it as a phone, what else are we using these things for? Absolutely.

In fact, I’d contend that the average smartphone user uses their smartphone as a phone as an afterthought. Primary for them is using their phone as their social media outlet, their calculator, their game center, their calorie counter, their camera, their voice recorder, their flashlight, their weather predictor, their jukebox, their address book, their alarm clock, their child’s entertainment, their grocery list, their shopping spree, their boarding pass, their compass…

But we all agreed that these were our PHONES!

So what’s my point? Why am I bringing this up? Because things evolve, and a lot of times in the financial world, a thing that we once had pegged as a “phone” for all practical purposes, has actually become something as valuable and multi-purposed as these smartphones you all are holding here tonight. Let’s take a look at one such financial product...Indexed Universal Life Insurance.

Let’s say we set up a blank canvas infront of you and you got the ability to create the perfect financial vehicle. If we you had that power, what kinds of things would you want it to entail or include?

• 100% protected from losses
• 100% liquid in case you need it
• Gives you the ability to earn a solid return

Right? So, traditionally speaking, what do you have as your options? 

Typically speaking, when clients are looking for places to put their money, they are faced with deciding between two options.

Option A includes financial vehicles like stocks, bonds or various other investments. Now, Option A involves risk, your principal and earnings aren’t guaranteed or protected, you’re generally looking at paying fees and any growth potential is subject to market volatility.

Option B includes financial vehicles like CDs, savings accounts, money market accounts, and annuities. Now, with this option, you’re generally looking at lower interest earnings, but your principal is protected. You could also be paying annual taxes on any gains or interest earned, and there may be a possible penalty on access to your money – especially if you want to access beyond a certain percentage or amount.

There may be a way to get benefits like the protection of your principal, growth potential, and having access to your money in one product you may have never considered, but only if you have a need for a death benefit to help protect or provide a legacy to your beneficiaries after you're gone.

What if there was an Option C that could both protect your principal and potentially generate competitive returns? See folks, there is where we’ve traditionally looked at a certain financial vehicle as a “rotary phone” when really it’s evolved into the iPhone 11 that does many other things. What I’m talking about here is a financial vehicle that offers:

• Growth potential – competitive interest rates and interest rate bonuses

• Tax advantages – which can help enhance the death benefit to your loved ones

• Protection from market losses – as part of a diversified retirement income strategy

• Death benefit – to your loved ones, generally tax-free

• Liquidity – access your cash accumulation value for any reason

And even living benefits that can be used for any purpose, including long-term care, to help cover the medical costs of an aging.

What is this “smartphone” I’m talking about? If one of your goals is to leave a legacy to help protect your beneficiaries’ lifestyles after you’re gone, one way to do so is through the use of life insurance. For example, if you have a need for a death benefit and you enjoy the protection of your principal, growth potential, and having access to your money, you may want to consider what I refer to as “Option C,” an indexed universal life insurance policy.

Let’s take a look at a hypothetical example of how it could be used…

Let’s say Jessica here is a 45-year-old with a relatively significant financial portfolio of investments and annuities. She’s got plenty in the market, plenty in annuities, and honestly doesn’t want any more of his assets placed in either of those options. She’s got roughly $250,000 essentially sitting in cash and is looking for something that gives him: growth potential without downside market risk and the ability to ultimately leave more to his loved ones when the time comes.

Using that $250,000, we take it and fund a single premium IUL policy, getting Jessica standard, non-tobacco health rates along the way. What does that ultimately mean for her? Well, first off, it creates a death benefit of over five hundred thousand dollars for his loved ones when she passes away. But folks, that’s the equivalent of looking at this solution as “just a phone.” Remember, life insurance has evolved and become so much more. Let’s look at what other benefits this might have for him…

First, this option is liquid. Liquidity is generally provided through policy loans and withdrawals. Waiver of Surrender Charge riders may also be available for an additional annual premium, although these riders may not be available in all states or on all products.

She’ll also have growth potential within the indexed universal life product as its account value is linked to market performance with caps which could be as high as 11 percent per year, meaning that’s the possible range of growth. All growth to the account value is tax-deferred, and of course, since this is life insurance we’re talking about, any death benefit paid out to beneficiaries when Jessica passes away would be paid out income tax-free to her beneficiaries.

One of the most innovative features of this kind of strategy – or one of the neatest “apps” on this "smartphone" – is that many of these IUL policies now also offer an accelerated payment of a portion of the death benefit to help cover qualifying long-term care expenses.

What does that really mean to you? That means that if you’re insurable by one of these policies, you can tap into its coverage and benefits in the future to help offset certain expensive costs such as in-home long-term care or, if necessary, nursing home care – costs that can quickly deplete a nest egg.

Accelerated death benefits and withdrawals will reduce the available cash value and death benefits.

I do want to point out that since we are talking about life insurance, there are a few items to keep in mind. There are costs of insurance and other fees. The older you are, the higher they get. They will have an impact on cash accumulation. When taking out loans or withdrawals, you will need to be aware that it will reduce the death benefit and if not careful, could cause the policy to lapse.

When placing a single premium into an IUL as we discussed in this article, the IUL would be considered an MEC. In a nutshell, that means although the cash value is growing tax-deferred, loans and withdrawals taken from the policy will be taxable as regular income. Most IUL policies are subject to a surrender charge schedule. As we discussed, there are a handful of options out there that offer riders to waive these.

So, folks, this may not be a solution for everyone, but for the right couple or the right individual whose goal is to grow their assets, protect their principal, have access to their money when they need it, leave as much as possible to their kids or loved ones and build in a buffer of protection for possible future long-term care? Well, this particular "phone" is already loaded with all of those "apps."

 So if you’d like to explore this option, be sure to send us an email, or book a 30-minute chat with one of our advisors. Let’s see if this could be a possible alternative for you.

sources/disclosures:

Please understand that this material has been complied to applicable regulatory standards as interpreted in good faith by Advisors Excel, LLC. Any deviation from the material as provided may render the content non-compliant by applicable regulatory standards. Advisors Excel, LLC shall not be held responsible for any deviation from the material as provided and you are solely responsible for any consequences of deviation from the material. Further, you are solely responsible for maintenance of compliance standards as required by applicable state and federal law and pursuant to your contractual agreement with Advisors Excel, LLC.

1Indexed Universal Life is not a registered security or stock market investment and does not directly participate in any stock or equity investments, or index. The index used is a price index and does not reflect dividends paid on the underlying stocks. Life insurance is not bank or FDIC insured.

2Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. 3Liquidity is provided through policy loans and withdrawals which will reduce available cash values and death benefits and may cause the policy to lapse, or affect guarantees against lapse. 4Living benefits are available in the form of accelerated death benefits. These benefits are NOT a replacement for long-term care (LTC) insurance. Living benefits and LTC riders are not available on all indexed universal life products and may not be available in all states. Addition of an accelerated death benefit or LTC rider may require an additional fee. Accelerated death benefits and LTC riders are subject to eligibility requirements.

*This is a hypothetical example provided for illustrative purposes only; it does not represent a real life scenario, and should not be construed as advice designed to meet the particular needs of an individual's situation.

1Liquidity is provided through policy loans and withdrawals which will reduce available cash values and death benefits and may cause the policy to lapse, or affect guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax.

2If properly structured, proceeds from a life insurance policy are generally income-tax free to the beneficiary.