Using IUL for College Planning or Tax-Free Retirement

IUL for College Planning or Tax-Free Retirement

With Indexed Universal Life insurance, you have this same level of security along with the opportunity to build cash value that can be accessed tax-free in the future, for any need, including college funding or tax-free retirement planning.

Indexed Universal Life Insurance (IUL), is permanent life insurance that offers all the benefits of universal life with accumulation values tied to a stock market index. An IUL policy has a fixed interest rate component as well as an indexed account option. Whereas traditional UL may credit 4 percent to 6 percent, IUL has the ability to receive index-linked gains as high as 18 percent or more.  

The major difference with IUL is the option to participate indirectly in the upward movement of a stock index without accepting the normal risk associated with investing in the stock market. The actual interest credited to a policy’s cash value is determined by the changes of an equities index. Most insurance companies use the S&P 500 Index as the underlying index for their IUL product. 

How can life insurance be used as a college funding strategy?

An important additional benefit of using the cash value in life insurance to supplement college funding has to do with qualifying for financial aid.  It is not required to report life insurance policies under the federal FAFSA program and they won’t be included in the calculation to determine if the child qualifies for aid through this program. College funding with life insurance offers self-completion, locked-in investment gains, tax-favored access to cash throughout the owner’s life without penalties, and exemption from countable financial aid assets.  This strategy offers much more flexibility, additional benefits and lower expenses than other vehicles and should be considered as part of a college funding plan and overall portfolio diversification.

According to the College Board’s Trends in College Pricing, the 2013-2014 average total costs (including tuition, fees, room and board) were $18,391 for students attending four-year public colleges and universities in-state and $31,701 out-of-state, and $40,917 for students at four-year private colleges and universities.  The most common vehicle used for college savings is a 529 plan. However, the cash available to the policyholder can be quite significant after several years of saving and can be a good resource for college funding strategy.

How can life insurance be used for tax-free retirement planning?

A properly designed,Indexed Universal Life Insurance policies offers tax advantages no other single product can provide.Unlike an IRA or 401(k), there are no limitations on the amount you can contribute annually to their IUL. You have access to your cash value at any age, any time, for any reason, without paying taxes or penalties. Indexed Universal Life Insurance is a cost-effective way to protect your savings from taxes while providing you with supplemental retirement income.

When you retire, you can take tax-free distributions of your cash value. IULs also allow the tax-free exchange of one policy for another without triggering income taxes. And the tax-free death benefit protects your loved ones against financial uncertainty.


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