More GIUL or Indexed Universal Life insurance is an important financial tool worth learning more about from a trusted, unbiased source. The issue with IUL is that the policy needs to be structured efficiently to reduce the insurance agents' commission to the minimum, while maximizing living benefits for you.

Insurance agent commissions are one reason how IUL gets a bad reputation.

However, IUL has numerous benefits:

• Unlimited contributions
• Tax Advantaged Accumulation
• Tax Advantaged Distribution – Under Some Circumstances
• Guaranteed Loan Provisions
• Unstructured Loan Payments
• More Growth Potential than Fixed Income
• Ability to Use Cash Value for Other Opportunities
• Policy Riders for Getting Funds for Chronic Illness, Like When Becoming Frail in Old Age

Three benefits that stand out in the above list for many indexed universal life policy holders are the tax benefits. Many feel they are paying a lot in taxes, and clients under 59 1/2, especially business owners, would like to access their money before retirement and still obtain some return on their money, instead of holding cash.

First, all insurance is about paying a small insurance premium in exchange for reducing or eliminating the problems that occur after a catastrophic loss. In this case, loss of life creates lost income and lost opportunity for loved ones left behind.

There are basically two types of life insurance, term insurance and permanent insurance. IUL is permanent insurance – meaning the purpose of the policy is paying out a death benefit amount of money when you die, whenever that happens – however young or old you are. If you and your spouse are 40 with children and you’re both earning a good income, then life insurance would pay your spouse the death benefit in case one of you passes away. The funds would help financially in numerous ways from paying funeral final expenses to replacing lost income and even paying for college tuition at some time in the future, perhaps.

Term insurance, on the other hand, is temporary life insurance that covers the insured’s life (e.g. your life) for a fixed number of years. Term life premiums are paid at certain fixed amount for a set number of years. There are different fixed terms of time, like 10 year term, 15 year term, 20 year and sometimes 30 or 40 year term life policies. When the term is up, you have a choice to pay increasing annual premiums or start a new policy -- potentially at a lower premium rate. Should something unfortunate happen when the policy is active, the policy benefit will pay the beneficiary.

Term life is “pure insurance”. There is no cash value with term life insurance. It’s relatively inexpensive and the rate is set by the insurance companies. For example, a $1,000,000 death benefit on a health 40 year old male 20 year term would cost less than $700 per year. The insurance would last until that person was 60 years old. 

Here is the catch, though. If you want to have insurance much later in life, like when you’re in your 80’s or 90’s, term life is not the least expensive insurance. Permanent life solves this problem by combining pure life insurance with a cash accumulation component. This is called permanent insurance.

The cash value inside the permanent life insurance policy grows, while the pure insurance piece diminishes over time. This is an interesting product worth the effort to learn more about, because of the benefits I mentioned in the first part of this article.

Permanent insurance is the kind of life insurance that has cash value and can leverage the cash value into a higher death benefit, if you die prematurely. (That’s kind of a joke. Did you get it? Die prematurely?) For example, if your cash value was $10,000, the death benefit could be $250,000. You decide on the policy design and make flexible premium payments over time.  

IUL is a form of permanent life insurance. With IUL, you can start and stop payments and increase or decrease premium payments over time. You can also decrease the death benefit on a universal life policy, if you wish, which would help reduce policy expenses and increase cash value. Finally, some life insurance companies allow you to convert portions of term insurance to permanent insurance, as well.

Leverage occurs when your cash value is much less than the death benefit. In addition to the death benefit, there are living benefits. When there is cash in the policy, that cash can be used for purposes other than life insurance, like paying for assisted living if you are unable to perform two out of six activities of daily living.

Now I hear you and some of my other colleagues' financial advisors saying that life insurance should be used only for that one purpose. This is where the rubber meets the road. If you fully understand permanent life insurance and design a policy properly, then the cash can be used for other purposes. Unlike investments, retirement accounts and loans, access to the cash value in the policy has few limitations and several benefits. Hint: cash value can be accessed thru collateralized loans. Take some time to contact me to discuss these ideas further.

A popular form of permanent life insurance these days is IUL. Perhaps you have heard or read about IUL in the financial blogs or from a financial advisor. The challenge with IUL is designing the policy policy efficiently to reduce insurance costs, including the insurance agents' commission, to the minimum, while maximizing living benefits to you.

That’s one reason how IUL gets a bad reputation. Agents are not fully aware how to design these policies efficiently for the client and they’re unfamiliar with differences between companies that issue the policies. Some companies deliver better results than others.

Currently, some companies are using bonuses and multipliers in their crediting strategies, which consumers need to be cautious about.

Here is a special video review from a professional colleague of mine that reviews IUL and how to make an informed assessment for yourself. If you’ve made it this far, then the 10 minute video should be worth your time to review. Again, feel free to email me at tim@waypfp.com or call me at the number below with any questions.