Why Indexed Universal Life Insurance Might Be New 401(k)

Posted On 10/13/2022

Investors are always looking for ways to outpace the current rate of inflation. That's why so many seeking to do so are now putting their money into indexed universal life (IUL) insurance policies. Over time, this model has developed into an increasingly viable alternative to both whole life insurance as well as 401(k)s.

In this article, I'm going to break down some top considerations you need to make when making comparisons between these three investment models.

What's the difference between IUL and whole life insurance?

While whole life policies typically come with a fixed rate of around 3% to 4%, an IUL policy can be done at a higher rate of typically around 7%—a figure determined by the stock market—and with no cap on that money, if done correctly.

That's the way IUL is capable of always outpacing the inflation on any whole life policy.

How does recession impact different investments?

If we were to use the definition of a recession as two-quarters of negative growth in your GDP, we would have officially entered a recession as of this past July.

Now, how do you outpace recession? Well, as inflation is currently at around 9.1%, let me ask you a question: What vehicles do you have to actually outpace inflation?

So many major companies invest so much of their stock in life insurance. Why? Because they understand the power of compounded interest.

Compounded interest is like an avalanche. Once it begins to roll, you can't stop it, no matter how much you try. Just like inflation.

Due to the market, we have too much supply in the system right now

As a business owner, now is the time to ask yourself the following questions.

1. Who's my financial planner or my financial advisor?

2. Do I have all the necessary new tools in place to feel confident I can actually outpace inflation over time?

3. Will it take me another 10 years or even 20 years just to break even with my losses during this last 90-day period? Or can I get those losses back within the next three to four years?

While with a 401(k), it might take you five to 10 years to get the money you lost back, with an IUL that has been properly funded, you can get the same amount back much more quickly. That is all because of the unique way in which compounded interest can outpace inflation.

Why might an IUL be better than a traditional 401(k)?

A 401(k) is a tax code given by the IRS to tax you only on your harvest, not on your seed. The 401(k) model was actually implemented in the 1980s during the Reagan Era for rich CEOs to have a tax shelter and somewhere to put their money over time.

What they found was that if you convince the middle class to put all their money into 401(k)s, you can also get more tax payouts later on in life—and collect more from the middle class.

This has evolved into a prominent savings plan for retirement even despite the model having become outdated, as some might suggest.

Life insurance presents certain advantages over 401(k)

With life insurance, you can anticipate that you'll always have money coming in, even when the market goes down. Your money is locked into the percentage rate determined when you bought it. And when the market goes back up again? You get all the gains. You never have to suffer a loss.

The IUL model is more complex, as the rate is determined by the stock market. But with its compounded interest, this investment's cash value has the potential to make you more money tax-free through IRS tax code 7702.

This capability allows you access to a retirement tax-free income for the rest of your life, plus leave a death benefit for your children's children's children's children. This is a substantial amount of multigenerational wealth to leave your family.

Make sure to investigate all potential models before investing

At a time when financial literacy is perhaps more valuable than ever, I hope my article sheds some light on the differences and potential benefits of each of these investment models.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Original Article: Why Indexed Universal Life Insurance Might Be New 401(k) (forbes.com)