When the economy collapsed in 2008 and financial products like 401ks lost almost 40%, there was at least one product on the market that was untouched by the market downturn. This product is often overlooked by many financial professionals when putting together a college planning strategy, a retirement plan with the goal of reaching the 0% tax bracket (or close to it) and other important parts of a sound financial plan.
An Index Universal Life (IUL) Insurance Policy is a very versatile solution to consider when recession proofing your portfolio and making your money do more than one thing. It’s definitely not the only answer if the economy tanks but definitely fills some major gaps. On the surface, it’s a whole life insurance product but when you pull back the curtain. There’s so much more to it. Inside of it is a growth account where your cash accumulation is protected by a 0% floor. This is based on the performance of the S&P 500. This means if the S&P 500 drops below 0%, the growth account is not touched by the downturn. On the other hand, it can have an 11.5% ceiling depending on the product you choose. This also means if the S & P 500 is up over 11.5%, the insurance company receives everything above 11.5% and your account collect the full 11.5% interest.
In the cash accumulation account, if you set it on increasing death benefit, you can deposit excessive amounts of money. This growth account can be used as a vehicle to distribute money to you throughout your retirement in the form of loans to yourself. These loans are tax-free. Having tax free income helps positions you to possibly land into a 0% tax bracket or close to it. This means you can access this money throughout your life especially in your retirement or when your children are in college without penalty or personal payback. When you pass away the death benefit pays out any outstanding loans with your beneficiaries receiving the rest. You must make sure there is $1 in the growth account in order to keep the account from being taxed when you pass away.
As you can see not only does an IUL help work towards recession proofing your portfolio, it gives you the flexibility through life to access your own money without being penalized as well as tax-free. Not to mention, some have a Critical Illness Rider in order to protect your assets and income in the case of heart attack, stroke or cancer. The death benefit will be accelerated to you while you are alive and paid off with the death benefit when you pass. If you’d like to understand the IUL better or have questions about anything life insurance, please give me a call at 443-987-0874 or send me a message at jess@jbfservices.com.