In today’s current market for retirement savings products, most clients are concerned about making the right choice. Fixed indexed universal life insurance (FIUL), when structured, can be an effective way to both provide the death benefit for your client's family but also offer tax-efficient savings components.
If the need is securing insurance coverage with growth potential and access to their funds, then FIUL can oftentimes be the right product solution to fit your client's specific needs.
Here are 5 reasons why FIUL might be the right product solution for your client:
- FIUL is a flexible premium life insurance policy, so it has no contribution limitations. Your clients can put as much or as little as they want into the contract, subject to underwriting and life insurance limitations, up to applicable MEC limits.
- Access to cash value: clients can withdraw their available cash values at any time, for any reason.
- An FIUL product is a permanent universal life insurance policy, with flexible premiums, a death benefit, and a savings feature. It is a permanent policy because the policy is meant to stay in force until the death of the insured, assuming it is properly funded and the cash values are managed. The policy has the ability to earn interest tied to the movement of an external index to help increase the policy's cash values. The premiums paid into the contract earn interest tied to a market index or indices, which grow the cash value in the policy.
- Because FIUL is life insurance, it ultimately provides a tax-free death benefit to the beneficiary or beneficiaries at the time of death.
- FIUL benefits from the preferential tax treatment afforded to life insurance per Section 7702 of the Internal Revenue Code. Under IRC § 7702, life insurance affords several benefits that make it attractive when being used for retirement planning purposes. These benefits are:
The inside buildup of the account value grows in a tax-advantaged/deferred manner.
Distributions2 can be taken up to basis and then free policy loans beyond that without any tax consequences.
A death benefit paid at death tax-free to the beneficiaries, less any loans outstanding.
FIUL can be a particularly useful concept for clients and business owners who need coverage as well as a way to provide retirement income, and companies looking to attract, recruit, and retain key employees, or HENRY's (High Earners, Not Rich Yet).
Despite the FIUL's ability to provide a traditional death benefit and the potential for long-term savings and retirement income, several misconceptions about this product exist. Download our 3 Big FIUL Myths guide to learn about these myths and how to address them with your prospects.
1 Indexed Universal Life Insurance is designed first and foremost to provide life insurance protection. While the interest crediting options are attractive for cash value accumulation, this product should always be promoted to first meet the death benefit needs of families and businesses with cash accumulation as a secondary benefit. One can lose money in this product of the issuing insurance company.
2 Distributions are taken through loans and withdrawals, which reduce a policy’s cash value and death benefit and may cause the policy to lapse. Loans are not considered income and are tax-free. Withdrawals and surrenders are tax-free up to the cost basis, provided the policy is not a modified endowment contract (MEC). A MEC policy is one in which the life insurance limits exceed certain high levels of premium or the cumulative premium payments exceed certain amounts specified under the Internal Revenue Code. For policies that are MECs, distributions during the life of the insured, including loans, are first treated as taxable to the extent of income in the contract, and an additional 10% federal income tax may apply for withdrawals made prior to age 59½.