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.
But one particular policy type has big benefits for families who need a way to boost retirement savings.
Life Insurance Helps Meet Your Retirement Goals
When you buy a permanent policy, it covers you for your entire life. Unlike a term policy, you never have to worry about your coverage expiring. As long as you keep your policy current, your family is guaranteed to get a death benefit when you pass away.
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.
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 pull from during retirement to supplement other streams of income you expect to have.
What's Different about Indexed Universal Life?
As I mentioned, IUL is only one type of permanent life insurance. What makes it different is the way it accumulates cash value.
In other types of permanent life insurance, you earn cash value with a set rate of interest. 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, which keeps your money safe. Instead, you're counting on gains in that index, which 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 month. If it 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. It all depends on your insurer.
Let's say your account's participation rate is 50%, you have $20,000 in the account, and your credits are 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% x 50% 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.
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.
