The role of IUL in your financial success.

Approximately 3,800 banks own $140 billion in bank-owned life insurance, including the top ten U.S. banks that have securely invested over $60 BILLION.

The IUL (Indexed Universal Life) is a financial product that has generated great interest among our clients and followers.

Along with the 401K, the IUL is one of the most requested and discussed topics among those seeking to secure their financial future and protect their loved ones. However, it is also one of the least understood.

What is Indexed Universal Life (IUL)?

First and foremost, let's define what IUL is.

The Indexed Universal Life (IUL) is a life insurance policy that combines the protection of life insurance with the opportunity to accumulate cash value over time.

In simple terms, by acquiring an IUL, you are protecting your loved ones with life insurance while accumulating cash value that can grow over time based on the performance of an index such as the S&P 500 to which your policy is linked.

This means you can benefit from market gains, with the additional protection of life insurance.

Fundamental Elements of IUL

1. Liquidity: IUL allows access to money within its cash value as needed. This flexibility provides additional financial support to cover unexpected expenses or take advantage of investment opportunities.
2. Security: IUL offers security by including protection against market downturns. With a floor of protection, the invested capital is shielded from negative market fluctuations.
3. Return on Capital: IUL offers a return on capital by linking policy growth to an index such as the S&P 500. This growth component, combined with the power of compound interest, allows accumulated capital to grow significantly over time.
4. Tax Advantages: Growth within the policy is tax-deferred, meaning no taxes are paid on gains as long as they remain within the policy. Additionally, money within the cash value can be used tax-free, and in the event of the policyholder's death, beneficiaries receive the death benefit tax-free.

Flexibility, a Differentiating Element

IUL also offers flexibility in terms of premiums and benefits, allowing you to adjust your payments, benefits, and options for using the money within the policy according to your financial needs.

1. Flexibility in Premiums: Policyholders can adjust the amount of premiums they pay, allowing them to tailor their payments to their changing financial needs.
2. Flexibility in Financing Period: Policyholders can choose to finance their policy for a specific period, such as 10, 15, or 20 years, depending on their financial goals and ability to pay.
3. Flexibility in Access to Cash Value: Policyholders can access cash funds through partial withdrawals, loans, or even scheduled withdrawal options, allowing them to use the funds as needed.

Fees, Long-Term Perspective

What if I told you that Indexed Universal Life (IUL) policies can offer rates as low as investment funds, as long as they are structured correctly?

Indexed Universal Life (IUL) policies can offer rates as low as investment funds (0.45%), but with many more benefits as long as they are structured correctly and viewed as a long-term strategy.

Using an IUL with a long-term perspective, spanning 15, 25, or even 40 years, is essential to optimize fee structures.

The first 10 years typically accumulate the highest fees, emphasizing the importance of commitment and, above all, understanding the primary reason for initiating this strategy.

If the IUL policy is structured correctly, maintenance costs remain low relative to accumulated cash value and death benefits.

Why is IUL often called an investment?

Many individuals and financial professionals alike present IUL as an investment strategy due to its ability to grow capital.

However, let's not be confused: IUL is life insurance, and its primary function is to mitigate risks and financially protect the policyholder's beneficiaries.

Although IUL has many other advantages, as we'll see later, understanding its primary function is crucial when considering initiating this strategy.

What happens if the market declines?

One of the great advantages of IUL is that it comes with a guaranteed minimum interest rate that serves as a safety net protecting your capital.

Even if the market declines, your capital won't decline with it. This provides stability and peace of mind even in difficult times.

Some companies offer a guaranteed interest rate between 0% and 0.75%.

Concept of Maximizing Funds

The concept of maximizing funds involves using the maximum contributions allowed by the IRS within the IUL policy.

This generates a multiplier effect thanks to compound interest, resulting in significant sustained growth.

The goal is to maximize the amount allowed by the IRS each year to ensure a solid financial foundation and maximize long-term benefits.

Strategy for Business Owners

What if you could protect your business and your family while simultaneously building a retirement savings fund?

Many entrepreneurs and business owners don't understand how life insurance can play a key role in the success of their business.

The reality is that any business can benefit from some of the strategies and concepts used to protect and maximize funds.

By understanding the benefits and areas where IUL can leverage your business planning, you maximize the chances of business success.

Below, I will explain one of the strategies used to help businesses in their planning and success, but there are other strategies that, due to time constraints, I will only mention, but I am open to explaining to any entrepreneur who wants to learn more about these strategies.

Strategies:

Business-Owned Life Insurance.

Key Employee Life Insurance.

Nonqualified Deferred Compensation Arrangement.

Life Insurance to Supplement a Qualified Retirement Plan.

Split-Dollar Arrangements.

Buy-Sell Agreements.

Executive Bonus Arrangement.

The executive bonus strategy is a powerful tool for business owners, where the company pays for life insurance for the owner, who is also an employee of the company.

Premiums and contributions within the policy are tax-deductible for the company under IRS Code 162.

This strategy leverages the benefits of IUL, such as tax-free fund accumulation and financial protection, while also providing tax deductions for the company.

As the policy owner, the entrepreneur has control over beneficiaries and the use of accumulated funds, making it a versatile tool for maximizing wealth growth, financial planning, and asset protection.

Benefits for the Business.

1. It will be tax-deductible for the business.
2. The IRS does not need to pre-authorize it or require disclosure and annual reporting.
3. There are no annual administrative costs for the business, and the bonus is handled through normal payroll services.
4. The company can select which employees to offer this benefit to.
5. It helps the company recruit and retain top talent in its industry.

The IUL in Financial Planning

Incorporating an IUL into a comprehensive financial plan for a business owner opens up a world of possibilities.

While the IUL is not the sole solution for a business owner's financial planning, it is a crucial strategy for mitigating financial risk.

When used strategically and intelligently, it can yield a host of benefits that strengthen financial planning.

In my experience, the IUL is a highly versatile financial tool that can adapt to a wide range of business owners' financial needs.

With its ability to address various areas, from family protection to retirement planning and tax protection, the IUL stands out as a comprehensive option for business financial planning.

Different ways in which the IUL can be used for financial planning include:

1. Providing financial protection.
2. Allowing for secure and growing retirement fund accumulation.
3. Serving as a source of capital for investments or business needs.
4. Assisting in funding children's or relatives' education.
5. Facilitating business projects or expansions.
6. Acting as a financial reserve to cover unforeseen expenses.
7. Contributing to the creation and protection of family or business assets.
8. Allowing for portfolio diversification and maximizing returns.
9. Permitting tax-free fund withdrawals.
10. Providing benefits in the case of critical or chronic illnesses, and even in the case of terminal illness.

Are you taking the necessary steps to protect your legacy and ensure a stable financial future for both yourself and your loved ones?

After delving into the world of Indexed Universal Life (IUL), it becomes evident why it can be a valuable addition to financial planning.

Business owners who opt for IUL not only safeguard their loved ones and secure their legacy but also take full control of their financial destiny, demonstrating admirable foresight in the process.

If you wish to explore in greater detail how to integrate this strategy into your financial planning, feel free to send me a direct message on my LinkedIn profile.

Danilo Ordaz is a financial professional specializing in financial and retirement planning for business owners.

Understanding that each business owner has different desires, aspirations, and challenges, he uses family financial protection strategies, income diversification, asset protection, and estate planning to assist each business owner in building their path to wealth and financial stability.