What is Cash Value Life Insurance?
To answer that question, first, we must understand what a Cash Value Life Insurance policy is. Universal life insurance is a permanent type of cash value life insurance policy with an investment savings element and low premiums. These types of policies are usually a flexible premium, but some can be a single or fixed premium. They also come in a lot of different models, from fixed-rate to variable to equity-indexed accounts. Index Universal Life also has tax-deferred cash growth for retirement all while maintaining a death benefit.
How Do IUL’s Work?
First, the customer will pay a premium, and it can be a Minimum, Target, Maximum or Specified premium. This premium pays for part of the annual renewable term insurance based on the life of the customer. If there are any other fees, they will be paid, and the remainder is added to the cash value portion of the policy. The cash value part of the policy is based on the increases in an equity index (but it is not directly invested in the market). You can select one, or multiple indexes, and even a guaranteed minimum fixed interest rate.
Are Cash Value Life Insurance Policies Safe?
Yes! If the market goes up, you will receive the gains either monthly or annually based on a participation rate or cap. If the market goes down, you will not lose any of your cash value accumulation. As the cash value grows, the customer may borrow from the policy without affecting the guaranteed death benefit. Distributions are tax-free versus tax-deferred in other vehicles, but taxes would be owed on any excess cash value that is withdrawn from the policy. At the death of the customer, any unpaid loans will be taken from the death benefit if it’s not repaid.
Why Do You Use These Types of Policies?
IUL’s are long-term types of policies. When you are saving money using an IUL, you shouldn’t take any money from it for at least 10 years. They are good for customers who can’t save money on their own and don’t have the option of getting a 401k or IRA. Other reasons, besides retirement planning, to use this type of policy would be for college planning, key person for business owners, or estate planning.
Contact one of our knowledgeable Life Sales Directors here at Pinnacle Financial today for help with a cash value life policy. We can run an illustration for you and get everything you need to sell these types of policies.
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