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Editorials for Permanent Life Insurance

Indexed universal life: Flexibility for Life

Let's take a closer look at how indexed universal life insurance can be a fit for each phase of a consumer's life: introduction, accumulation and preservation.

In order for a financial vehicle to be worthy of all phases of a consumer's lifetime, it must be liquid, it must have a proven track record (or rate of return) and it must have the flexibility to adapt to the consumer's changing financial needs. Indexed universal life is a unique strategy that can provide all of these features and more. Let's take a closer look at how Indexed Universal Life (IUL) can be a fit for each phase of a consumer's life: introduction, accumulation and preservation.

During the introduction phase, the consumer has usually completed their education/training and is eager to take on the world like a boxer lacing up his gloves for his first fight. This phase is usually the first step to the complete financial picture.

During this phase, the consumer has usually either started or is about to start both a career and family. Financial concerns are usually short term and the road map to retirement is in its rough draft. Concerns such as providing an education for the kids are usually the extent of long-term planning during the introduction phase.

Universal life can provide the perfect tool to accumulate funds tax deferred to help with a child's education. IUL has the flexibility to contribute either as little or as much as the family can afford without financial consequences such as lapsing a policy.

This allows for the flexibility a young family may need in a struggling economy. In fact, Indexed Universal Life has become a preferred choice for college tuition plans, such as the 529 plan.Benefits include the ability to withdrawal the funds at any time without penalty and having no limitations on annual contributions (outside of MEC limitations). Mom and dad take comfort in knowing that if their child chooses an alternative option to college, they will not be penalized and will still have the capability to receive tax free withdrawals.

In the accumulation phase, the benefits of a universal life policy can continue to be advantageous. In this phase, the consumer is in the process of achieving long-term wealth and minimizing long-term liabilities. Consumers are using IUL as protection against the loss of a family's income in the event of a breadwinner's death.

Business owners can also benefit from cash value life insurance. They will often use this strategy to pay for business expenses that can be accessed in the form of a loan while avoiding federal income taxes. Additionally, many small businesses today are utilizing IUL as a way to protect themselves against the death of a business partner or key employee that would have a significant impact on the profitability of the business. Or the business owner can protect his family from a premature death, ensuring a financial remedy such as paying off their mortgage in the event of a catastrophe.

The ability to withdraw funds tax free and the luxury of protecting the breadwinner with an accelerated tax free death benefit is making the IUL more attractive than ever for families and financial professionals.

The final phase of one's financial life is the preservation phase. During this phase, the consumer will be looking at exiting from the workforce and easing into retirement.

Most retirees entering this phase will have two major concerns today: rising income taxes and a bear market. Considering that most retirees will live on an income of approximately 70 percent of their average working income, their concerns are valid.

With our federal debt just recently exceeding $15 trillion, most feel that federal tax rates are likely to rise. When adding volatility to the equation, the retiree can easily find themselves in trouble, especially considering most retirement plans fluctuate in value with market performance and are usually taxable upon withdrawal. Because of this, retirees are turning to IUL as a means to bypass market volatility, enjoy moderate returns through both indexing and annual reset and have the ability to withdraw their funds exempt from federal income tax.

Indexed Universal Life can be a perfect fit for the three phases of one's financial life: the introduction, accumulation and preservation phases. Regardless of which financial phase one is in, the IUL has the flexibility to adapt and conform to the changing needs of both the investor and financial professional.

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