It is a unique vehicle that allows tax free account value accumulation, allows you to access your money tax free, and, when you die, blossoms in value and transfers income tax free.
Advancements in Products
Life insurance has had some serious advancements in products. Have you thought about the last time you updated your life insurance? If you purchased a policy before January 1, 2009, you may be paying too much for insurance costs. That's right! With advancements in medical technology and longer life expectancy, a new mortality table is being used, 2001 CSO, to be able to calculate death benefits to age 120.
We have meet with many individuals who currently own a term policy which is set to expire in the coming years. Some policies may have a convertibility clause, which allows insureds to convert their current policy to something the company may make available at the time of conversion. Some of these premiums balloon from 5x to 15x the current premium being paid. This option is just not feasible to some. There are some companies which allow a more insurer friendly convertibility for a slightly higher premium.
For those of you who think life insurance is only to be used to transfer wealth to you heirs, you are wrong... well, half wrong. It is true that Term Life insurance is only used to transfer to beneficiaries a death benefit within the term of the policy. Policies have had many developments since the Term policy was introduced way back when. There are savings elements added to the Cash Value element of these new policies. Whole Life, Universal Life, Variable Life and Indexed Universal Life policies which a portion of your premium payment is deposited into an accumulation account. In the right column is an example of the advantages of an Indexed Universal Life Policy.
Upside Potential, Downside Protection
Indexed Universal Life Insurance is the newest life insurance product. It is a universal life contract where the funds in the accumulation account are linked to the growth of an equity index. (S&P, NASDAQ, Dow). There is an annual lock-in and reset of the index, a minimum rate of return combined with a maximum cap on the gains. This example below shows a hypothetical three year period when the S&P goes up in year one, drops in year two, and goes up again in year three.
IUL generally earns higher interest than a traditional universal life policy. And with the 0% floor of the index account, you will never experience the market-based losses associated with a variable universal life policy, which is tied to the performance of the investment options that you've selected..
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