Financial professionals often look at clients solely through the eyes of an illustration. We assume what a client looks like today will continue into eternity, instead of realizing that life changes over time. One example of this has to do with clients being able to afford higher contributions to an indexed universal life insurance (IUL) policy in the future than what they can afford today.
Until 1982 no statutory rule existed that defined the characteristics of life insurance for federal tax purposes. However, in the early 1980s, Congress was motivated to act by the development of a new generation of Universal Life contracts because these new products provided significantly more cash-value build-up than was needed to support the death beneﬁt.
One of the most common risks in retirement is order of returns risk (also known as: sequence of returns risk). It is well known within the financial services industry that investing in marketable securities exposes clients to this risk. However, do your clients know that many indexed products are not immune from order of returns risk?
To no surprise of anyone in our business, financial professionals often express to me their frustrations with the life insurance underwriting process. When I consult with them, I find myself asking the same important questions:
In the past, financial professionals have relied on a well-balanced portfolio of stocks and bonds to manage a client’s risk versus return. While the concept is widely accepted, if you ask 50 different financial professionals what a well-balanced portfolio of stocks and bonds looks like, you'll likely get 50 different answers.
There are various products out there that provide your clients with retirement income, and many of the traditional options such as a 401(k), IRA or Roth account come to mind. What many of your clients may not realize is that a properly structured and funded Indexed Universal Life (IUL) policy can provide your clients more benefits with less risk than the traditional options.
A very basic way to understand how Indexed Universal Life (IUL) credits interest is to think of it like a very simple game where you flip a coin 10 times. There are then two ways to play the game. In Game 1 you win $100 for every head, and lose $100 for every tail. Game 2 awards you $70 for every head, but you lose nothing for every tail.
Today with so many carriers and marketing organizations jumping on the Indexed Universal Life (IUL) bandwagon, it’s hard to believe that the product was actually introduced to the market in 1997. Back then, forward-looking insurance companies were trying to find ways to make their fixed insurance products more attractive.
When choosing the best financial product for your clients, you must take the tax advantages or disadvantages into account. The way contributions, earnings, distributions, and death benefits are taxed could dramatically impact how much your clients or their beneficiaries receive when their accounts are cashed out. Here's a high level comparison of how taxes impact your clients' different financial accounts.
A question some clients raise is that they’ve been told that indexed universal life policies won’t perform over the long term, in other words the policy performance isn’t as rosy as illustrated. Before AG 49, many producers over-illustrated the power of IUL, and today those new guidelines help temper some of the more outrageous claims. However, many carriers are finding unique ways to enhance policy performance by reducing the costs to buy the indexing options.
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This content is for informational and educational purposes only and is not designed, or intended, to be applicable to any person's individual circumstances. It should not be considered as investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action.