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benefits of owning an iul

"This policy contractually GUARANTEES that your cash value will never have a negative return due to market losses - EVER"


- Patrick Kelley, Author of The Retirement Mircale & Tax Free Retirement 

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15 Benefits to owning aN IUL

(Indexed Universal Life) Policy ​


1. Death Benefit - The Crown Jewel of all life insurance policies is and always will be the death benefit that it provides to the policy owner's beneficiary. Really, when you think about it this feature itself is a miracle. For pennies on the dollar, individuals can buy protection for their family that will ensure their family can continue in the lifestyle they are accustomed to, even if the income earner were to die prematurely. That is one important benefit...just ask any widow who was left without it. 


2. Cash Accumulation - Just like most cash value life insurance policies, The Indexed Universal Life policy (IUL) provides the potential for cash accumulation within the policy. This cash can be accessed and used at the policy owner's discretion. The individual can always make a tax-free withdrawal, up to the total amount of premiums they have paid into the policy since this withdrawal simply represents a return of the after tax money that was originally contributed to the policy. 


3. Protection Against Market Loss - There is no doubt, this is one of the most incredible features of the IUL. This policy contractually GUARANTEES that your cash value will never have a negative return due to market losses - EVER. WOW! The power of not losing your principal should be at the top of everyone's list when it comes to your finances. What would you have paid to ensure that you never had a losing year? We actually offer a 1% floor, which means if the market were to have a negative year, you would gain 1% in your cash value account. 1% is better than a CD or the Money Market today. See Chart below.


4. The Annual Reset Provision - If the IUL had a "Secret Sauce", this would be it in my opinion. The Annual Reset Provision allows an individual to capture, and more importantly, lock in each year of positive return in the market. So, if a policy holders cash value increased by 10% in a given year, the policy owners cash value would be credited the 10% and now become the new  protected amount within the policy; even if the markets were to go down in the future. Another way to think of it is this: the annual growth to a policy's cash value is a policyholders to keep forever. It can never be taken away due to negative market performance. So, not only is a policyholder's initial cash value contribution protected from loss but the annual growth is as well. 


5. Upside Growth Potential - Protecting you capital against loss is vitally important, but so is knowing your account can also experience the potential for decent growth. We all want to know there is room for growth..and there is! While each company sets its own ceiling on growth (called a cap), the industry as a whole is hovering somewhere in the low to mid teens. We offer the IUL at 100% participation to the markets growth with NO CAP! So how does this all play out?  If the stock market index that your policy is tracking (Often it's the S&P 500) goes up 5%, then the money in your cash value grows by 5%. If the index grows by 11%, then the money in your cash value account grows by 11%. Since we offer NO CAP, If the Index goes up by 26%, like in 2009, guess what; then the money in your cash value account goes up by 26%.

6. Tax Deferred Growth - It's very important for individuals to understand that life insurance cash values grow tax-deferred, not tax-free. In other words, if someone were to simply withdraw all of his or her funds, or cancel the policy, especially in the later years, then all of the gain (the amount above what you started with ) would be subject to tax, income tax - not capital gains tax. 

HOWEVER, life insurance companies have designed a way for individuals to gain access to an equivalent of the cash value amount, completely tax-free. Let's take a closer look below. 

7. Tax-Free Access to Cash Accumulation - Let me ask you a question. When you go to buy a car, is the loan you take out for the car taxed? NO. The car may be taxed, but the loan is not. It's also true with a house, a boat, or any other life insurance as well! Life insurance companies have designed a brilliant way for you to be able to access an equivalent of your cash value...TAX-FREE. It's simply called the Policy Loan Provision. This feature, and the way in which it is so vital is explained in further detail below. 

8. No Minimum Age or Income Requirement - Unlike tax-qualified plans, such as a SEP IRA, life insurance has no minimum age that an individual must attain to put this strategy into action. Nor does an individual need to have earned income in order to contribute. For example, my clients have purchased a policy for their children within the first month of each of their lives. This can supercharge results because it enables you to add 20 or more years of tax-deferred growth into the account. THE RESULTS OVER TIME ARE STUNNING. 

9. No Mandatory Distribution - One of the many problems of saving money in a tax-qualified plan like an IRA or 401k, is that, not long after you turn 70, you are forced to begin to liquidate the account, whether you need the money or not. The government does not get paid (taxes) unless you start withdrawing money. So it forces you to begin withdrawals at 70 in order to get their hands on the portion of your retirement account that is essentially owed - the tax...Make sense? 

The IUL, however, does not come with this burden. You have control and you get to decide how and when you would like to use your money, not Uncle Sam.

If you currently have RMD's (required minimum distributions) to take out of existing accounts and do not need the funds, an IUL is the best place to put it.

10. Access Cash at Any Age - It seems to me that one of the main reasons people currently choose to retire at the age of 60 and older is because utilizing tax- qualified plans requires that they must be at least 59 and a half get their money without steep penalties. This is not so with an IUL. Your money is accessible at any age, leaving 100% of the decision up to you. 

11. Protection From Lawsuits - It is common, in many states, that the cash value accumulated inside of a life insurance policy is protected from creditors, whether that is due to a bankruptcy, lawsuit, or any other type of judgement. This is one benefit you don't hear about very often, likely because most industry pros don't know this. However, for individuals in high income professions, especially physicians, due to malpractice suits, this can be one of the most significant features of the policy. Make sure to check the law within your state.

12. Continued Investment If Disabled - Another optional feature I want to let you know about is a Terminal Illness Rider. This allows you to take out 75% of the Death Benefit while you are alive to pay for whatever you would like to pay for; medical bills, vacations, fulfilling a bucket list... Anything really. 

13. Does Not Create Taxation of Social Security Benefits - What many people don't know is that a great percentage of their social security benefits can now be taxed as income when received. All money that comes from a tax-qualified plan (401k, SEP, SIMPLE, IRA etc.) during retirement will be included in income taxation.

Here's the good news. Income coming out of a cash value policy, whether it be via withdrawal or loan, does not subject an individual's social security to income taxation. That is very significant!

Ex.: You're 67 and you're taking $100K out of your IUL policy every year. You only recieve your $25,000 from Social security and you have an additional $25,000 from a side business..YOU WILL NOT BE TAXED ON THE MONEY YOU TAKE OUT OF YOUR POLICY! An extra $100K tax free. 

14. Avoids Probate - This says it all. Because a life insurance policy is a contract that has a named beneficiary, the death benefit is paid directly to the beneficiary within days of the insureds death. It does not get tied up in probate or other legal battles. It is quick, simple, easy and immediate. Contrast that with the lengthy and difficult delay that probate can impose on the rest of a deceased's estate. 

15. Accurate Return Figures - The returns that are reported by most financial products are not accurate. A shadow of their reality. This feature is very eye opening as...

" The average return reported by financial companies are not reality, they are smoke and mirrors."

- Patrick Kelley


Is It Really Tax Free? 

Is IUL Income really Tax Free?
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Yes. It's called a 0% Policy Loan Provision 

and it's awesome! ​ Don't let the word loan scare you..

The policy loan provision in your IUL (Indexed Universal Life) is what allows you tax-free access to your cash value. Don't let the word loan scare you, once you understand it, you're going to feel very comfortable. This is one of most ingenious creations in the history of finance. And you need to take full advantage of this, now let me explain. Let's say you are going to borrow money to buy a new car. Is the loan you receive from the bank or credit union taxed? NO. The car may be taxed, but loans are never taxed. Only items are taxed. Let me repeat that... Loans are not taxable. 


So life insurance companies created a contractual policy feature that allows the policy owner to have access to  tax-free money by using their life insurance cash value as collateral. This feature enables the owner to avoid any tax on the money received because it acts as a loan from a financial institution and not a withdrawal.


Here's how it works, the policy owner can always take a tax-free withdrawal up to the total premiums paid into the policy, subject to surrender charges because the first money allowed to come out of a life insurance policy is simply a return of the owners premium payments, which are not taxed as they were Non-Qualified funds. So a withdrawal from the original principal is not taxed when withdrawn but if the gain is withdrawn you would be taxed as income, because the policy owner would be withdrawing money that was not yet taxed. BUT...Luckily the policy owner has another option, and that is where the Policy Loan Provision comes in to play.


Life insurance companies allow a client to take a loan against the cash value, not FROM the cash value but AGAINST it. There is a very important distinction. The cash value within a clients policy simply acts as collateral for that loan, you might be thinking taking a loan on my own money in retirement doesn't sound to smart... But what if you were charged 0% interest and did not need to pay the loan back during your lifetime? The money you took out tax-free will be subtracted from the large tax-free death benefit you have attached to your policy.

Prior to Policy Year 10 

For the first 10 years the Policy loan provision interest rate is around 6% and then drops to 0% after year 10. Now for illustrations sake let's assume that you need to withdraw some funds prior to the 10th year. So the individual is now being charged 6% per year on his or her borrowed money. Here's the cool part.. When an individual takes out a loan, the life insurance company then essentially removes that same amount of money from the cash value as collateral and puts it into a separate account that also earns 6%.

So let's do the math. If you are being charged 6% for the loan and  your cash value acting as collateral is gaining 6%, what is the net loan interest rate being charged? ZERO. Does that make sense? You are being charged the same rate of interest on your loan that you are earning on the cash value acting as collateral, allowing you to experience a 0% net interest rate!


After Policy Year 10

After the 10th year of your policy you can access cash tax-free and interest free! The Policy Loans Provision's interest rate goes from 6% to 0%, so if you choose to take funds out at that point its just a 0% "Loan". 

Very Simple. Very Easy. You've avoided paying tax on the money earned in your cash value account! Great Job! Your learning so much today! I bet your neighbors don't know this! 

The last component I need to explain in order for you to understand how this all fits together is how the life insurance death benefit is treated from a tax standpoint, because it's the unique tax treatment of death benefit that makes this strategy work. Without the death benefit this strategy would not exist. Understanding the next paragraph is key to your understanding this strategy. 

What Makes This Strategy All Come Together.. Pay Attention

Death benefit proceeds are income tax-free. They are not estate tax-free without creating special trusts, but they are income tax-free. So when a policy owner dies, his or her tax-free and interest free loan received during his lifetime is paid off with the income tax-free death benefit. And once this loan is paid off, what's left over gets paid to the beneficiary, also Tax- Free. 

*Make sure you buy this policy from a top-rated insurance company and an agent who knows what they are doing. 

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