Indexed Universal Life insurance (IUL) is a financial product that offers both protection and potential for cash accumulation. For agents/advisors to make an IUL sale, they are required to have a deep understanding of the product’s features, benefits, and how it can align with their clients’ financial goals. In this article, we’ll walk you through the basics of how indexed universal life insurance works, as well as discuss strategies that utilize IUL products to serve as a powerful component to your client’s overall portfolio. This will ultimately help you learn how to sell indexed universal life insurance.
How Indexed Universal Life Insurance Works:
An Indexed Universal Life Insurance product is a type of cash value life insurance policy that provides the opportunity to increase the accumulation value within a policy without exposing the accumulations to downside risk.
An IUL policy offers multiple one-year indexed point-to-point strategies to determine the interest to be credited to the policy as well as a fixed account option. Indexed strategies use the performance of a market, between specific time frames, to determine the interest rate applied to the policy. The interest rate applied may be subject to limitations, such as a cap or participation rate. A fixed account will earn interest at a rate periodically determined by the company. Interest is calculated using a compound method assuming a 365-day year and is credited at an annual effective interest rate. Any withdrawals or loans can reduce the amount of interest credited to the policy.
Hypothetically speaking, an IUL policy provides peace of mind during volatile markets. Policy owners can choose between several methods of having interest credits to their policy. Because indexed strategies are based upon the movement of an index, there may be concern about what happens in a year when the index decreases. Not to worry! Within an IUL policy the cash value will not go down due to a negative market return. This allows the policy owner to take advantage of the potential increases in the index while maintaining a level of protection in the event the index drops below 0%.
Indexed Universal Life Insurance Strategies:
To effectively sell IUL insurance, it’s essential to identify potential clients who would benefit from this type of coverage. Start by considering individuals who:
- Need Coverage for Life:
Clients who want insurance coverage that extends beyond a specific term, ensuring financial protection for their loved ones throughout their lifetime. - Value Wealth Accumulation:
Individuals who are interested in building cash value over time may use the policy as an “investment” tool to complement their overall financial strategy. - Want Tax-Advantaged Growth:
Who doesn’t appreciate tax-deferred growth? The cash value component of an IUL makes it an attractive option for long-term savings. - Have Estate Planning Needs:
Those who are concerned about estate taxes and wish to leave a legacy for their beneficiaries while minimizing tax liabilities. - Are Planning for Retirement:
Individuals looking to supplement their retirement income with a source of funds that can be accessed through policy loans or withdrawals. - Are Concerned about Future Tax Rates:
One of the primary benefits of an IUL policy is that the cash value growth is tax deferred, and withdrawals can potentially be made tax-free.
With these attributes in mind, let’s review our most popular strategy utilizing indexed universal life insurance: A Life Insurance Retirement Plan
Life Insurance Retirement Plan
Most people want to retire at some point in the future. However, retirement needs differ from person to person. It is important for your clients to start planning early to ensure they have the income they need to support the lifestyle they want during retirement.
There are many ways to fund retirement, including: Taxable Investments. Tax-Deferred Accumulation Vehicles, Qualified Plans, and Life Insurance. At its core, a Life Insurance Retirement Plan (LIRP) is designed to provide your client with both protection for their loved ones and serve as a potential source of retirement income.
A LIRP is a life insurance strategy that utilizes permanent life insurance, typically Indexed Universal Life (IUL) insurance, that is designed to maximize cash value. This is done by reducing the death benefit to the lowest level while maintaining the tax benefits of life insurance. This will create the maximum amount of tax-free income to be used during retirement.
Do you think one of your clients may be interested in a Life Insurance Retirement Plan? Input your information below and we will send you a sample proposal from our software explaining this strategy, which you may share with your client(s).