INDEX UNIVERSAL LIFE

Index universal life insurance, or IUL, is a type of permanent life insurance that combines a death benefit with a cash value component that can grow based on the performance of an underlying index, such as the S&P 500. Here are some of the benefits of index universal life insurance:

1. Potential for higher returns: Because the cash value component of an IUL policy can be tied to the performance of an index, it has the potential to earn higher returns than traditional universal life or whole life insurance policies. This can help policyholders accumulate more wealth over time.

2. Flexibility: IUL policies offer flexibility in both premiums and death benefit. Policyholders can adjust their premiums and coverage amounts to fit their changing financial needs over time. Some policies also offer riders or additional features that can provide more flexibility in how the policy is used.

3. Tax advantages: The cash value component of an IUL policy grows tax-deferred, which means policyholders do not pay taxes on the earnings while they are accumulating. Additionally, policyholders can access the cash value through tax-free loans or withdrawals, which can be a valuable source of tax-free income in retirement.

4. Death benefit protection: Like all permanent life insurance policies, IUL provides a death benefit that can be used to provide financial protection for loved ones in case of an unexpected death. The death benefit is generally tax-free to the beneficiary and can provide a source of income replacement, final expenses, and other financial needs.

5. Estate planning: IUL can be used as part of an estate planning strategy, providing a tax-efficient way to transfer wealth to future generations.

PREMIUM OPTIONS

IUL policies generally offer flexibility in premium payments, allowing policyholders to adjust their payments to fit their changing financial needs. There are typically three premium payment options:

1. Single premium payment: A single premium payment option allows policyholders to make one lump sum payment at the beginning of the policy term. This payment covers the entire cost of the policy, and the policy remains in force as long as there is sufficient cash value to cover the monthly insurance costs.

2. Fixed premium payment: A fixed premium payment option allows policyholders to pay a fixed premium amount on a regular basis, such as monthly, quarterly, or annually. This premium payment is typically set at the beginning of the policy term and remains the same throughout the life of the policy.

3. Flexible premium payment: A flexible premium payment option allows policyholders to adjust their premium payments based on their changing financial needs. This option provides more flexibility than a fixed premium payment, as policyholders can increase or decrease their premium payments to fit their budget.

It's important to note that IUL policies require a minimum premium payment to keep the policy in force. This minimum premium payment is typically set at the beginning of the policy term and is based on the policy's premium load, mortality and expense charges, and other factors. If the policyholder does not pay the minimum premium, the policy may lapse or lose its death benefit protection.

DISBURSEMENTS

Disbursement of funds from an IUL policy can be made in a few different ways, depending on the policy's features and the policyholder's needs. Here are some of the ways that disbursements can be made from an IUL policy:

1. Death benefit: If the policyholder passes away, the death benefit is paid to the beneficiary tax-free. The death benefit can be paid in a lump sum, installments, or as an annuity, depending on the policy's features and the beneficiary's preferences.

2. Withdrawals: Policyholders can withdraw funds from the cash value component of their IUL policy tax-free up to the amount of their basis (the amount of premiums paid into the policy). Withdrawals beyond the basis are subject to income taxes and potential surrender charges, depending on the policy's features and the timing of the withdrawals.

3. Loans: Policyholders can take loans against the cash value component of their IUL policy. These loans are tax-free and do not need to be repaid as long as there is sufficient cash value to cover the interest and fees associated with the loan. If the policyholder does not repay the loan, the amount of the loan plus interest and fees will be deducted from the death benefit when the policyholder passes away.

4. Surrender: Policyholders can surrender their IUL policy and receive the cash value in a lump sum. Surrender charges may apply, depending on the policy's features and the timing of the surrender.

IUL TO BUILD WEALTH

An IUL policy is a type of permanent life insurance that offers a death benefit as well as a cash value component that grows over time. The cash value component of an IUL policy is linked to a stock market index, such as the S&P 500, and typically has a floor, participation and a cap rate.

The FLOOR rate is the minimum rate of return that the cash value component of the policy will earn, regardless of how the stock market performs. If the stock market index has a negative return, your cash value will be locked in and your cash value will not lose value. Some IUL and Fixed Indexed Annuity policies also have a guaranteed minimum interest rate.

A Participation Rate account will generally pay a stated percentage of the performance of the index. For example, if the insurance company has a 60% participation rate for a given index and the index performs at 30%, the cash value will be credited 18% (60% x 30% = 18%).

The CAP rate, on the other hand, is the maximum rate of return that the cash value component of the policy can earn in a given year. For example, if the insurance company has a 13% cap rate for an index and the index performs at 30%, the cash value that will be credited is13% only.

Here are some ways that an IUL policy can help build wealth:

1. Tax-deferred growth: The cash value component of an IUL policy grows tax-deferred, which means that policyholders do not have to pay taxes on the growth until they withdraw the funds.

2. Protection against market downturns: The floor rate ensures that the cash value component of the policy will continue to grow, even if the stock market performs poorly. This can help protect policyholders from market downturns and provide a more stable rate of return over time.

3. Potential for higher returns: If the stock market performs well, the cash value component of the policy can earn returns up to the cap rate, which can potentially provide higher returns than other types of fixed-income investments.

4. Flexibility: Policyholders can choose to allocate their premiums to different index accounts or investment options, depending on their risk tolerance and investment objectives.

5. Estate planning: The death benefit of an IUL policy can provide tax-free funds to beneficiaries, which can help with estate planning and transfer of wealth.

It's important to note that IUL policies can have surrender charges, fees, and other costs associated with them, and that policyholders should consult with a financial professional or insurance agent to understand the policy's features and potential risks before purchasing.

Why would you choose one account over the other? Different accounts perform best during varying economic times. Using the example above, if the index performed at 13%, the cash value would have received 13% in the Cap Rate Account but only 7.8% in the Participation Rate Account (60% x 13% = 7.8%). However, if the index performed at 25%, the Cap Rate Account would have capped the interest credit at 13%, while the Participation Rate Account would have paid 15% (60% x 25% = 15%). The key is diversification. With diversification, you do not need to worry about how the index is performing.

Consider the below graph which compares an Indexed Account to Large Company Stocks from August 1997 until August of 2014. As you can see, when the market had losses, the indexed account was locked in and lost no value. Remember, your losses hurt you more than your gains help you.

OWNERSHIP OPTIONS

CONTINGENT OWNER

In an Indexed Universal Life (IUL) insurance policy, a contingent owner is a person or entity who is named as a backup or secondary owner of the policy in case the primary owner is unable or unwilling to continue as the owner.

The contingent owner does not have any ownership rights in the policy unless the primary owner dies or becomes incapacitated. At that point, the contingent owner would assume ownership of the policy and become responsible for making decisions about the policy going forward.

The purpose of naming a contingent owner is to ensure that the policy remains in force and the intended beneficiaries receive the death benefit in the event that the primary owner is no longer able to manage the policy. For example, if the primary owner dies and there is no contingent owner named, the policy may become part of the owner's estate and be subject to probate, which could delay or reduce the payout to beneficiaries.

It's important to note that the contingent owner designation can be changed at any time during the policy's lifetime, typically by completing a form provided by the insurance company.

Naming a contingent owner for an Indexed Universal Life (IUL) policy is not a requirement, but it can be a good idea in certain circumstances to help ensure the policy remains in force and that the intended beneficiaries receive the death benefit as quickly and efficiently as possible.

In the case where the spouse is named as the primary beneficiary, some people may choose not to name a contingent owner because they assume that the spouse will automatically become the owner of the policy if the primary owner dies or becomes incapacitated. However, it's important to note that this is not always the case.

In some situations, the spouse may not be able or willing to assume ownership of the policy, or there may be legal complications that prevent the spouse from doing so. For example, if the spouse is also incapacitated or has passed away, or if the couple is going through a divorce, the ownership of the policy may become more complex and time-consuming to determine.

In an Indexed Universal Life (IUL) insurance policy, the spouse can be named as the contingent owner. In fact, it's a common practice to name the spouse as the contingent owner of the policy.

By naming the spouse as the contingent owner, the policy will remain within the family and there will be no need for probate or court involvement in the event of the primary owner's death or incapacitation. Additionally, the spouse will have full control over the policy and be able to make decisions regarding the policy's management and distribution of the death benefit.

Having a contingent owner named in the policy can help ensure that the policy remains in force and the intended beneficiaries receive the death benefit in a timely and efficient manner, regardless of the circumstances surrounding the primary owner's death or incapacitation. It's generally recommended to consult with a financial or legal professional to determine whether naming a contingent owner is appropriate for your specific situation.