by Amy Lawson, MBA, CDFA®
Last week I shared with those of you who might not have been unaware that, while I am a divorce financial planning maven, I am also an investment advisor, providing comprehensive financial planning for almost 20 years.
As I mentioned last week, with the current, crazy stock market volatility, it is stressful to watch our portfolios nose-dive. To say the ride is white-knuckled is a bit of an understatement, especially for someone facing a huge life event, such as retirement, or divorce.
Last week we talked about annuities and how they’ve evolved and because they have evolved, it’s OK to consider them as part of comprehensive financial plan, provided, of course, that it’s a good one.
Life Insurance With More
This week we’re going to talk about a type of life insurance policy called an index universal life policy, or IUL.
The IUL is a type of whole life insurance policy; a type of permanent insurance. By “permanent,” I mean that as long as the premiums are paid, you are covered; your coverage is NOT for a limited period of time, or “term.” Whole life policies are a type of policy that accumulates cash value over time.
Prior to the creation of the IUL, the insurance company that provided the whole life policy would decide how much interest it would credit the policy each year – it was typically very low. Over time, these policies lost their appeal because people could buy an inexpensive term policy and invest the difference in the stock market for a more attractive return on their money.
With the IUL, the amount of interest that is credited to the policy is linked to the performance of an index, with the S&P 500 typically being one of the options with most policies. When the index increases in value, the amount of interest that is credited to your policy is a portion of that increase. How much of the increase depends on the insurance company that offers the policy.
Why An IUL Is Worthy of Consideration
One of the beauties of the IUL, is that when the index increases, the value of the policy will increase, but if the index has a negative year, the value of your policy remains unchanged from the previous year. In short, the value of the policy will either increase each year, or, stay flat.
Another beauty of the IUL is that it may provide a living benefit. Most people know that life insurance pays a death benefit, which traditionally serves two functions. The most common function is to provide for people who are financially dependent on you, such as your children or a spouse. The second traditional function is to pay estate taxes so that your heirs won’t be forced to sell property or a business to do so. But, the IUL may provide a living benefit as well. That’s right, it may provide a benefit to YOU while you are still alive. You may take cash from the policy and that cash is tax-free.
Because the IUL is a type of life insurance policy, it requires a monthly premium. The amount of monthly premium one is willing to pay is used to project the future growth of the policy and, thus, how much money can be taken out in the future while the policy holder is still living.
Want to find out if you are a candidate? I welcome the opportunity to be of service!
Wishing you peace & plenty of tax-free cash!
Your gray girlfriend,