Life Insurance

Tax Free* Income

Could life insurance offer potential benefits for retirement?

Tax Free* Income

Life insurance? In retirement? Some people may wonder if getting a new life insurance policy in retirement would be valuable for them. (Beyond the typical death benefits, of course.) In fact, there are situations in which a certain type of life insurance may be useful for retirees even if you have a large amount of savings. Let’s take a look at an indexed universal life (IUL) policy, for example. This is an option that may offer some people the chance to access additional tax-free* income. Specifically, traditional retirement accounts may have maximum contribution amounts. However, an IUL is different. Instead, it has insurance rules and regulations so different terms apply.

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Why is it Tax Free* Income?

One of the lesser-known potential benefits of an IUL is income in retirement. Of course, people do use life insurance to make sure their loved ones still have financial resources via death benefits. However, did you know that it may be possible to take out money from your IUL, depending on your policy terms? In some cases, a retiree may decide to use this access to cash as another income source in retirement. Remember, an insurance policy may grow in cash value without a tax liability until a later date.

Accessing Money in Retirement

Using an IUL may give you the chance to have another place for your “emergency money.” Some individuals may decide to use this money for college expenses for their grandchildren or children. Also, IUL cash value might be borrowed against it for large expenses. Of course, this may reduce your life insurance payout amount but you may decide to weigh that outcome against your need for cash today. The good news: tax free* income options may be available with an IUL.

What Are Some Different Types of Life Insurance?

Term life insurance has a set period of time during which the policy owner has death benefit coverage. Put simply, if you pass away during this term, your beneficiaries receive a death benefit. However, this type of policy usually holds no other value. When the term is up, so is your death benefit.

Indexed universal life (IUL) insurance may provide more options and benefits than a term policy. For example, when you max out the cash value of your IUL, you may decide to take out some of the money to use as income. Did you pay your premium in full? Then, you may be able to take tax free* income on what is left. Also, some retirees may decide to borrow against their life insurance policy. Because tax regulations differ on money you borrow versus money you earn, some retirees use this concept for tax-free* income.

When Might An IUL Be Something To Consider?

Certainly, not everyone will be a good fit for an IUL. 

However, in some circumstances, it can be a useful tool to learn more about. Here are some situations in which retirees may consider learning more:

  • Cash value of IUL is not at risk of loss due to market conditions
  • Cash value increase uses an index
  • Each year, you can “lock in” your cash value increase
  • Choice of index or indexes that link to your IUL
  • Potential tax-free* income or tax-free* access of money
  • Premium may be paid upfront or over time
  • Possible way to use some of your money before age 59 1/2
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Benefits of Life Insurance Beyond Your Life

IULs may offer a death benefit to your beneficiaries without taxation. Other types of assets may not have this benefit. However, by selecting the right type of policy, you may be able to secure this feature for your family. Protecting and serving is a key value at Total Financial Solutions.

Do you value protection as well?

Contact us to learn more about how an IUL works. We’ll talk about potential options you may wish to consider in your quest to leave a legacy and protect those you love.

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