You might wonder what life insurance has to do with retirement. Isn't it about making sure your family is protected if something happens to you?

Yes, it is. That's still the #1 reason to buy life insurance. But one particular policy type has big benefits if you need a way to boost your retirement savings while protecting your loved ones.

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How Indexed Universal Life Insurance Helps Meet Your Retirement Goals

Don't let the long name confuse you. Indexed universal life (IUL) is just one type of cash value life insurance. It covers you for your entire life, unlike a term policy. In other words, you never have to worry about your coverage expiring. As long as you keep your policy current by making regular payments, your family is guaranteed to get a death benefit when you pass away. That's a level of security that provides true peace of mind. There's no worrying about outliving a term, or paying for coverage you don't use.

Another feature my clients like about IUL is the option for flexible payments. You have a say in how much you pay and when. Unlike other policies, which require you to pay a certain amount per month, universal policies are designed to have lump-sum funding payments, or large annual payments. You can pay all at once, a couple times a year, as seasonal income allows, or keep a regular schedule. It's all up to you. If you have variable income from contracting or freelancing, this type of flexibility can really come in handy.

A third benefit of permanent life insurance is the cash value it accumulates. That's what makes this type of coverage so smart for those looking to build a more comfortable retirement. A portion of every premium payment you make goes to the cash value portion of your policy. Over time, this cash value can add up to tens of thousands or even hundreds of thousands of dollars. It's a great source of funds you can borrow against or withdraw from during retirement to supplement other streams of income you expect to have.

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What's Different about Indexed Universal Life?

As I mentioned, IUL is only one type of cash value life insurance. What makes it different is the way it accumulates that cash value.

With other types of cash value policies, your money grows thanks to a rate of interest set by your insurance company. An IUL policy gives you the option to direct some of your cash value into an indexed account, where it earns interest based on the performance of a market index (such as the S&P 500). You aren't actually investing in any stocks or securities, which keeps your money safe. Instead, you're counting on that index to perform well. Big gains for your index result in a higher amount of interest being credited to your account.

Your insurer monitors the value of the index tied to your account at the beginning and end of each accrual period (monthly, quarterly, semi-annually, or annually, depending on your insurer and policy). If your index goes up, you get a percentage of that increase. That percentage is based on your policy's participation rate. If it goes down, you either get a small minimum guarantee of interest (often 1%), or you get nothing added. You will never lose cash value since that money isn't actually invested in the index.

Let's say your account's participation rate is 50%. Now, let's say you have $20,000 worth of cash value, and your interest rate is tied to the S&P 500. If the S&P 500 goes up 4% that month, your insurer multiplies that gain by your participation rate. Since 4% (.04) x 50% (.5) is .02, your insurer multiplies .02 by $20,000 and credits your cash value account with $400.

IUL policies are a good way to provide financial protection for your family, along with the chance to build your retirement savings without risking anything on the stock market. You get a chance to participate in market gains, with complete downside protection and no risk of losing any cash value if your index falls. Later in life, you can borrow against that cash value or withdraw it for anything you like: extra retirement income, unexpected healthcare costs, bucket-list items, home renovations, college tuition for the kids or grandkids...the list goes on an on. There are no restrictions on how you can use that money. It's yours, and you get to decide how and when to spend it.

As always, the first and foremost benefit of life insurance is the death benefit - it's the peace of mind and financial security that death benefit provides. I'd encourage you to consider this as well as the benefits IUL can provide for your retirement.

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