The Truth About Indexed Universal Life Insurance

It is not what you are expecting

the Best Life Insurance

“ Life Insurance – The Most Expensive, can be the Best Life Insurance you can Buy!”

Meet Joe, he is Considering buying Life Insurance!

Joe is 35 years old and in great health. Joe would like to get the Best Life Insurance you can Buy. He has an excellent middle management position with a Fortune 500 company with future growth opportunities along with great benefits including a 3% dollar for dollar match toward any contributions he made to his 401k account. Bob was taking full advantage of the 401k savings option and then some. He was currently contributing the maximum amount permitted of $17,500 a year to his 401k. He is also happily married to Marie, who currently is a stay at home mom with two young healthy active children, Sally, age 4 and Joe Junior, age 2 ½. Joe is currently in a 28% tax bracket.

Joe was presented with two choices for life insurance from his life insurance agent.

The insurance agent determined that with all of Joe’s responsibilities, including the mortgage on his home and future college expenses that Joe needed to have at least a $1,000,000 of personally owned portable life insurance in addition to the group term life he had through his employer, especially while the children were growing up.
Joe thought that was a realistic amount and wanted to purchase a 20 year term as he believed that was the least expensive way to buy life insurance. The agent provided Joe with a quote of $495 a year for the 20 year level term policy with an A+ rated life insurance company. The total cost to Joe over the 20 years would be $9,300. The guaranteed annual premium for year 21 would then be $11,065 which is more than the previous 20 years premium in total and the premium will increase every year after that.

If Joe maintained his good health he could reapply for a lower rate but if he was unfortunate enough to have some major health issues along the way, he would have to pay that premium or give up the coverage. Joe certainly thought he was going to live longer than 20 years as he was only 35 and close to that I am invincible/immortal thinking age that many younger people have.

The agent mentioned to Joe that he was also in the process of creating a potentially risky as well a fully taxable retirement plan and the income from it can reduce other government benefits he may qualify for by saving so much money in just his 401k plan. Such as higher taxation of Social Security benefits as well as potentially higher medicare health insurance expenses for both he and his wife during retirement

He explained to Joe that by putting all of his savings into the 401k plan, he was also putting all of his savings at risk, as there are no guarantees in these plans. It wasn’t too many years ago, 2008, that most people’s 401k plans became what unfortunately ended up being called 201k plans due to the sudden 40% drop in the stock market. Many people got out of the markets at that time and never got back in to take advantage of the re-surging market.

By putting all of the money into the 401k plan, he is also making that money very inaccessible. If Joe needed access to his money before age 59 ½, provided the plan would allow it, he would have to pay a 10% tax penalty plus income taxes at the then current income tax rates. When accessing the money in the 401k plan it would always be subject to taxes at rates at the top of his tax bracket no matter when he accessed it. Also, after age 70 ½, if Joe doesn’t take out at least the minimum amount required by law he can be subject to an additional 50% tax penalty on the required minimum distribution.

Joe mentioned that he was getting a great company match and the agent agreed that he should certainly take advantage of the match but he could kill two birds with one stone if bought the most expensive $1,000,000 life insurance he could get. Joe thought the agent was getting a little crazy in his thinking but he always tried to be open to new ideas so he said, “Please explain, what birds are you talking about?”

The agent began by simply saying, “Joe, you do know that you need some life insurance and if we do this correctly, you can have a more robust retirement plan than a 401k plan that also includes the life insurance coverage you need as well as critical illness and chronic illness benefits that you may need today as well as for the rest of your life. The Life Insurance plan is not subject to market risk but can still provide market like returns. This insurance plan is more flexible than your 401k plan in regard to contributions and can provide penalty free and tax free access to the money before age 59 ½, as well as during your retirement, all without any government penalties, requirements or limitations. This is a plan that, unlike your 401k plan, also allows any residual monies you have in your plan at death to pass onto your heir’s income tax free. Amazingly, all of this is available to you at no additional cost.”

Joe looked at the agent and said “That sounds too good to be true!”
The agent replied, “Unsurprisingly, I almost always get that very same response to this idea, from my clients.”

The agent then explained that the one key aspect about this idea and the reason this works so well is the extra money that you overpay into this special life insurance policy, does not go to waste. It is your money and it goes into an account set up for you that is tied to one or more major stock market indexes that are only subject to the positive gains of the market and to none of the losses of the market. It all grows tax deferred and when you do take the money out using policy loans, for any reason, it can be accessed as needed at no charge and income tax free. My insurance policy of choice unlike your 401k also includes a 3% underlying guarantee that makes sure you never have to worry about whether or if the market is doing well or not.

There are expenses in the policy to pay for the cost of insurance, policy fees, and administration fees but as time goes by, the expenses are paid out of the index account on a before tax basis and they generally end up being 1/3 to 1/10 the cost of the expenses that you are being charged in your current 401k plan. Also remember, your 401k has no guarantees against losses, no life insurance coverage, no critical illness coverage, and no chronic care coverage, but the 401k does have higher expenses, it is subject to market risk, potential tax penalties if accessed before 59 ½ and it is fully taxable at your top tax rate when the money is accessed, even after you die.

This just may be the Best Life Insurance you can Buy!

The Agent ran some preliminary numbers and it came out like this. If Joe happens to live a long life or a short one, He will always receive more money either as a life insurance death benefit or as spendable income from the insured plan vs. the 401k plan. This plan initially includes a $1,000,000 of permanent life insurance that will grow along with cash value over the next 20 years to provide inflation protection. On a before and after tax basis both the insurance plan and the 401k plan will cost exactly the same. The comparison shows you contributing $14,500 to the 401k plan or $10,440 based on a 28% tax bracket to the life insurance plan to age 67 with both accounts projected to grow at 7% annually. When your 401k plan attempts to match the tax free income available from the life insurance policy starting at age 68 (at a projected 7% growth rate, you could take out a little over $96,000 a year of projected tax free income), the taxable 401k plan requires a before tax withdrawal of $133,369 to match the tax free income from the insurance policy and it runs out of money when you reach age 79 (it would last less than 12 years) whereas the life insurance continues to provide you with $96K+ tax free to age 100 (33 years) and the projected life insurance death benefit at age 100, which is still over $950K, would go to your heirs income tax free.

Click on the image to see Joe’s IUL Plan compared to his other options.

the Best Life Insurance you can Buy

The bottom line Joe, is this, if you live a long or short life, you can safely provide to yourself or to your heirs over 4 times as much money in the form of after tax spendable income, available for necessities as well as the good life, as you would have received by contributing and tying up your current before tax $14,500 contribution into your 401k plan.

A properly structured Max Funded Indexed Universal Life Policy from the right company can be:

“The Best Supplemental Retirement Plan of the 21st Century!”

 Watch the short video:


The Tax laws that enable this were passed by congress in the 1980’s, known as DEFRA, TEFRA, & TAMRA which defined a life insurance contract and can be seen in the IRS code tax law 7702.

Let us show you what a properly designed indexed universal life insurance policy looks like for you.  You can use the quote request box to the left of this page or call us at 1-800-715-8519 to get your personalized quote.


never lose money

“Rule No.1 is never lose money. Rule No.2 is never forget Rule No. 1.” Warren Buffet

Warren Buffet said it the best.  He is very good at what he does – no he is the best at what he does.  What would happen if we could all follow Buffet’s rules of investing and never lose money?

How much money would you have saved now?

How much sooner could you retire to enjoy life?

Back in 1997, Transamerica introduced the first indexed universal life insurance policy.  Although this breed of universal life insurance has evolved over the last 20 years, the principal has remained the same.

“Rule No.1 is never lose money.

Rule No.2 is never forget Rule No. 1.”

Warren Buffet

I get it.  You aren’t really looking to buy life insurance.  And that is ok.

Let me pull back the curtain and introduce you to why you would even consider buying indexed universal life insurance as a retirement savings tool.

Yuk – you don’t even get a tax deduction for what you pay into the policy!

Let me start off with a question:  Would you rather pay taxes on the seed or the harvest?

What is Indexed universal life insurance? Indexed universal life insurance is just that.  It is a life insurance policy that provides a lump sum of tax-free cash to your beneficiaries when you die.

Yep, that is harsh.  Just about everyone needs life insurance, we just don’t want to pay for it.  After all, wouldn’t you rather take that summer beach trip or winter ski trip instead of paying a life insurance premium?

Indexed universal life insurance (IUL) is considered a permanent life insurance policy.  Permanent as opposed to term life insurance which is temporary.  IUL is permanent because the policy is meant to stay in force until the day you die and with proper funding, IUL will do just that.   The premiums you pay into indexed universal life insurance earn interest and grow the cash value of your policy.  This bucket of cash that grows inside your policy can be used for many things.  Anything really, you choose how the funds are used.  Maybe you are looking to build up a college savings fund for the kids or grandkids, or to finance your major purchases, or RETIRE.

The cash value in an indexed universal life insurance can be accessed through
withdrawals or tax-free loans.  In my opinion, tax-free loans are what have caused never lose moneyIUL to achieve ROCKSTAR growth.  Imagine getting a paycheck each month at retirement and not having part of it go to Uncle Sam.


The potential interest on these policies can reach around 13% and for the last 5 years have averaged over 10% in the policy that I personally own.    What is even more amazing is that you can’t lose money in your policy if the stock market loses money.  This policy is not a security and not invested directly in the stock market.

Even though we can enjoy stock market like returns with IUL, our money is not at risk! Remember Buffet’s rule # 1?  Never lose money.

So the worst case return in a year is 0%.  If the index you have chosen in your policy is negative, you get 0% – no return for that policy year.  That is a pretty good deal.  Especially if you look back to 2000 and 2008.  These years were not so good to investors, especially if you were looking to retire soon thereafter.

Indexed universal life insurance = life insurance + higher than average interest credits + income

IUL is still life insurance but most people use it as a vehicle to accumulate cash to later fund retirement with tax-free dollars.

Ready for an example?

Peter is age 35 and wants to retire at 65 like most of us do.  Let’s assume that John is willing to fund his indexed universal life insurance policy with $5500 per year (about $450 per month).  This is the same amount that he can put into an IRA or ROTH IRA.

John’s $5500 would purchase an IUL policy of around $450,000.  Part of the $5500 premium goes to pay for life insurance and expensed in the policy, the rest goes to the cash value account.

If his money grew at just over 7% per year, he could quit paying premiums at age 65 and start receiving a tax-free income stream of around $50,000 per year for the rest of his life.

What if Peter waits until he is 40?  Just 5 years later and look at the difference.  Peter’s $5500 buys an IUL policy for around $370,000 and his tax-free income at age 65 would only be a little more than $30,000 per year.

Still a great deal but look at the difference in what 5 years can make.

Peter at age 45 – the IUL policy death benefit is around $300,000 and the annual tax-free income at 65 is about $20,000.

My point is – the longer you wait, the less you will have.  Another great thing about indexed universal life insurance is that you are not limited as to what you can contribute like in an IRA or ROTH IRA.  Some of our clients are putting in $200 a month and some are putting in over $100,000 per year.

These examples are of policies that we specially design to produce as much income as possible.  I know that at age 35, $5500 per year sounds like a lot to pay for life insurance.

Here is the deal.

We are buying as little life insurance as possible with the $5500.  Very little of the $5500 annual premium is actually going to purchase life insurance.  Most of your premium is going towards savings.  Remember we get tax-deferred growth on the money that we put in the policy.

So again, what is indexed universal life insurance?  IUL is a life insurance policy that you may design in such a way that maximizes the cash value enough to generate a lifetime tax-free income stream when you are ready to quit working and enjoy life.

Our clients come in all financial shapes and sizes.  Whether you are looking to save $200 per month or $20,000 per month, we can show you how it can work for you.  Just use the quote request form on this page or give us a call at 1-800-712-8519.

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