Strategic Uses, Comparing and Evaluating IUL

At Franklin Financial and Retirement, we understand that financial decisions can be stressful. That’s why we keep things simple. We ask the right questions. We listen carefully. Then we offer guidance that fits your needs.

Indexed Universal Life (IUL) insurance offers more than a death benefit. It is a flexible financial tool. It can help you prepare for retirement. It can reduce your tax burden. It can protect your legacy. Let’s explore how IUL works and how it compares to other options.

Strategic Uses of IUL

IUL insurance provides benefits during your life and after. It offers flexibility and long-term value. Many people use it to grow money, save on taxes, and protect their families.

Tax Advantages of IUL

IUL policies come with several tax benefits:

• Tax-deferred growth: Your cash value grows over time. You don’t pay taxes on gains as they grow.
• Tax-free access: You can take loans from your cash value. These are not taxed if your policy stays active and is set up correctly.
• Tax-free death benefit: When you pass away, your beneficiaries receive the death benefit. This is usually not taxed as income.
• Avoid MEC status: If you add too much money too fast, the policy becomes a Modified Endowment Contract (MEC). This removes tax-free loan options and may trigger taxes and penalties.

IUL for Retirement Income

IUL can support your retirement plan. It gives you control, flexibility, and tax advantages.

• No required minimum distributions (RMDs): You are not forced to take money out at a certain age.
• Tax-free retirement income: You can use policy loans to create income. These loans are not taxed if handled properly.
• Higher contribution potential: You can add more money than you can with IRAs or 401(k)s.
• Protect other assets: You can use IUL income first. This allows your other savings and investments to keep growing.

Legacy and Estate Planning

IUL helps you pass wealth to your loved ones. It can reduce taxes and avoid legal delays.

• Wealth transfer: The death benefit can skip probate. It is usually paid out quickly and tax-free.
• Estate liquidity: The benefit can help pay estate taxes, debts, or funeral costs.
• Supports trust planning: IUL policies can fund an Irrevocable Life Insurance Trust (ILIT). This keeps the policy out of your taxable estate and safe from creditors.

Roll-Out Strategy

A smart way to fund an IUL is through a “roll-out” strategy. This means slowly moving money from a retirement account, like a 401(k), into an IUL over time.

Here’s how it works:

Let’s say you have $500,000 in a 401(k). Instead of moving it all at once, you transfer $100,000 each year for five years. This spreads out the tax impact. You avoid a big tax bill in any one year. Each $100,000 is taxed as income that year. But smaller amounts are easier to manage.

The money goes into an IUL policy. The policy is set up to avoid MEC status. This means you keep the tax advantages of the IUL.

Benefits of the Roll-Out Strategy:

• Lower taxes: Smaller yearly transfers reduce your tax burden.
• Better policy performance: Gradual funding helps your policy grow the right way.
• Protect your legacy: Over time, the IUL builds a tax-free death benefit. It also grows cash value for retirement or other needs.

This strategy works well for people nearing retirement. It helps move money from taxable accounts into a tax-advantaged plan. It adds flexibility and protects your financial future.

Comparing and Evaluating IUL

Understanding both the benefits and the risks helps you make smart choices. Here’s what to know about IUL.

Pros of IUL

• Grows tax-deferred: Your money grows without yearly taxes.
• Flexible premiums and benefits: You can adjust your payments and coverage.
• Access cash value without tax: You can use loans from the policy for any reason.
• No stock market losses: Your value won’t drop if the market goes down. Most policies include a minimum growth floor.

Cons of IUL

• Higher early costs: Fees are highest in the first few years. This can slow growth.
• Complex interest crediting: How interest is calculated can be hard to understand.
• Capped growth: There is a limit to how much you can earn in a strong market.
• Risk of lapse: If you borrow too much or stop paying, the policy can lapse. This could lead to taxes and lost coverage.

IUL vs. Other Financial Tools

Each tool has its own strengths. Comparing them can help you choose what fits your goals.

• Whole Life Insurance: Offers steady, guaranteed growth. IUL offers more flexibility and possibly higher returns.
• Roth IRA: Gives tax-free withdrawals. But it has income and contribution limits. IUL does not.
• Variable Life Insurance: Can earn more, but carries more risk. IUL offers protection with lower risk and smoother growth.

IUL may not be the best for everyone. But it works well for those who want steady, tax-advantaged growth without market risk.

Why Choose Franklin Financial and Retirement?

We make insurance easy to understand. Our goal is to help you save money while meeting your needs. Our licensed agents ask the right questions. We find plans that work best for your goals. We also check for every discount you qualify for.

We focus on education and personal service. We help you understand your choices. We take the time to explain your options clearly. You’ll feel confident in your decisions.

Let’s Talk About Your IUL Options

At Franklin Financial and Retirement, we’ve helped hundreds of families protect their future. We’re ready to help you, too.

Whether you're planning for retirement, building wealth, or creating a legacy, IUL may be a smart part of your strategy.

Talk to one of our experienced advisors today. Let’s find out if IUL is right for you.