A. An IUL policy could help you in 3 major areas:
- Supplement your retirement income
- Plan for the worst in life
- Address declining health in mature age
Let's take a look at each of the above 3 IUL benefits one by one below.
1. Supply Retirement Income
An IUL product at the end of the day is life insurance. It is tied to the stock market, but not in the market. When comparing an IUL to mutual funds or stocks, there are notable differences. The gains on market-based products can be astronomical, but so can the losses. With an IUL, since the money is not in the market, insurance carriers can guarantee a zero percent floor. To be conservative and based on AG49 Regulations, IUL products generally are not illustrated above 7%.
In addition to being immune to stock market volatility, if done properly, an IUL is not subject to taxes upon withdrawal.
How an IUL policy holder could use IUL to supplement retirement income? For example, someone retires at 65 and is looking to postpone taking Social Security to the maximum age of 70, they could use a portion of their cash value in their IUL from age 65 to 70, thus holding off accessing their Social Security. The income tax-free loans do not have to stop at age 70 and, if properly designed and funded, loans could be taken out from age 65 to 100 and beyond, therefore preventing the policy holder from outliving their money.
2. Plan for the worst in life
What happens if the unexpected happens? We all know life insurance can cover a percentage of one's estimated lifetime earnings and can be distributed to beneficiaries tax-free upon death, this is something market-based products such as 401(k) and other tax-deferred accounts cannot replicate.
3. Address health care needs in old age
What if the unfortunately happens while you are still alive? Whether you contracts a terminal illness with 2-year life expectancy, or cannot perform multiple activities of daily living, or suffers cognitive impairment, it would give you a peace of mind knowing your IUL can accelerate a portion of your death benefit to cover medical expenses.
In short, when comparing IUL to other financial vehicles, apart from the differences mentioned earlier, one key difference is the IUL can help with medical bills upon suffering physical or cognitive impairment.