Fixed Indexed universal life insurance (FIUL) is one of the more innovative wealth-building options available today. First and foremost, it provides a death benefit like all life insurance policies. The difference is that this one also provides a build-up of cash inside the policy. This cash is not exposed to market risk, can be accessed tax-free, and is liquid. You can access this cash without penalties or taxes before reaching age 59.5+, unlike your 401(k). It’s an incredibly flexible asset that offers much more than typical life insurance policies.

An FIUL is a permanent life insurance policy with a unique cash value accumulation structure. Unlike term life insurance, which expires after a specified period, FIULs provides coverage for your entire lifetime. While many people appreciate the death benefit it offers, they are increasingly attracted to the potential for cash value growth. Given the volatility in the stock market, individuals seek safer investment avenues for capital growth without incurring risk. Traditionally, many have turned to IRAs and 401(k) plans; however, these come with market exposure, deferred tax liabilities, and access restrictions that penalize withdrawals before age 59.5. Consequently, they may not serve as the optimal retirement strategy.

Many people exploring FIULs  do so as part of their retirement strategy. The cash value component of an FIUL allows for tax-free policy loans, making it especially appealing for those who anticipate rising tax rates in the future. If you choose not to repay the loan, it won’t adversely affect your financial situation; instead, the outstanding amount will simply be deducted from your death benefit upon your passing.

For some, an indexed universal life policy serves as a supplemental wealth-building tool alongside more traditional investments. Unlike retirement accounts such as 401(k)s and IRAs, there are no age restrictions on taking policy loans. This unique feature positions FIULs as a highly liquid wealth-building asset, enabling greater flexibility in accessing funds when needed.

As Warren Buffett wisely states, the first rule of investing is to avoid losing money, and the second rule is to never forget rule number one.

Fixed Indexed Universal Life insurance policies protect against losses linked to stock market downturns. FIULs typically have a growth floor that ranges from 0% to 2%. To illustrate, if you have $100,000 in a typical brokerage account and the market dips by 15%, your balance will shrink to $85,000. Conversely, if this amount is in the cash value of an FIUL, your principal remains intact at $100,000 (minus fees) due to the protection offered by the floor. Now, consider the following year when the same index surges by 15%. In your stock account, you would only have $97,750—nearly regaining your previous amount. However, with the FIUL that didn’t incur any loss, your value would rise to $115,000 minus fees.

The floor on the FIUL not only prevents monetary losses but also saves you the time and stress of recovering from downturns. Furthermore, the earnings from the FIUL are tax-deferred and can be withdrawn tax-free. The floor provides principal protection, while any gains from the S&P translate into capped earnings for the FIUL. Protecting against downturns plays a crucial role in enhancing your long-term savings.

Most qualified plans, like a 401(k), incur income taxes when you withdraw funds from your account, and IRAs face the same tax consequences. In contrast, an FIUL policy offers a tax-free death benefit for your heirs. If your estate surpasses the threshold for estate taxes, you can place your life insurance policy into a trust to mitigate these taxes. Additionally, loans taken against your FIUL are not considered taxable income by the IRS. Since you are borrowing rather than withdrawing funds, you won’t face income tax on these amounts. Moreover, because they are classified as non-taxable income, your annual FIUL loan during retirement won’t elevate your tax bracket. Distributions from your FIUL are not reported on your tax return, meaning this money won’t impact your Social Security taxes or Medicare premiums.

An FIUL policy is a form of permanent life insurance, ensuring that you will not outlive the death benefit, unlike with term life insurance policy. In the event of an unforeseen occurrence, your FIUL will provide a tax-free death benefit to your beneficiaries. If structured properly by your agent, the death benefit increases as you contribute to the policy. Additionally, this payout is tax-free, offering exceptional peace of mind for both you and your family.

One of the most common myths surrounding Fixed Indexed Universal Life insurance is the notion that it is excessively expensive. This misconception often originates from financial advisors who may be reluctant to see their clients transition their funds into an FIUL. FIUL fees are typically front-loaded, meaning they start at a higher rate and gradually decrease over time.  You are receiving a substantial tax-free death benefit at time of purchase so the first 5 to 10 years, depending on factors such as age and health, the fees associated with an FIUL can indeed be higher than those of more traditional financial vehicles. After approximately a decade, FIUL fees tend to become more competitive and even lessthan those of other financial options. However, it’s important to remember that an FIUL policy can last well into your 80s, 90s, or beyond and offers tax deferred growth combined with tax free income during your lifetime and a tax-free death benefit for the people you love.

Guarantees are based on the claims paying ability of the issuing company.  This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice.