Why Realtors Are Turning to Indexed Universal Life For Cash Accumulation

Every working realtor knows that their industry is unlike any other.  Each and every sale is dependent upon the functioning of several independent parties.  For example, once a prospect has decided to put an offer in on a new home; the bank must approve the credit and financing, the appraisal must come in at needed value, and the seller (listing agent) must agree to the terms of the sale.  Only when all of the stars are aligned can the sale be facilitated.  Without close attention to detail, it is unlikely for the close to happen.  

Since every real estate agent is commission based, most realtors look for 3 main components with respect to investing long term.  First, the product must be liquid.  Every commission based realtor knows first hand there can be down times from close to close.  Liquidity is precious during periods of stagnant sales, especially in off-season months.  Second, the product must be protected.  In cyclical volatile markets like we are experiencing today, the concern of losing your money can be quite the burden.  Third, the product must be flexible to accommodate sporadic funding throughout the year.  Its impossible to tell when all your closes will happen throughout the year, making flexibility of funding an important part.    

For these reasons, more realtors than ever before are turning to uncapped strategies within indexed universal life (IUL).  IUL strategies allow for flexible funding and uncapped earnings that are very attractive.  With a couple of strategies that exist today, there is no limit on how much interest can be earned through annual reset.  Annual reset allows for market upside while eliminating all of the market downside.  In fact, from 01/01/2001 to 12/31/2015 many IUL policies would have averaged an annual rate of return of over well over 8% before the cost of insurance is taken out.   Liquidity is also a vital component of an IUL policy.  Over 80% of the funds can be accessed at any time during the year for needed liquidity.  Every other tax deferred vehicle that's available comes with a penalty from the IRS if a withdrawal is made prior to 59 1/2 years of age.   Finally, and most important, is the capability to have your IUL policy structured to allow for withdrawals exempt from federal income tax.  Since all IUL policies come with an accelerated death benefit, if properly structured IUL policies can allow for a personal loan to be taken against the death benefit that will not have to be repaid until death.  Upon death, the loan is deducted from the face amount (death benefit) and the remainder is passed on to your beneficiary tax free.  Its no surprise that these “living benefits” have attracted several commission based employees as an avenue for long term growth strategies.

To learn more on how an IUL strategy can benefit your practice, please feel free to email me at CalB@SafeMoneyAustin.com.  

Protecting Income Benefits From One Generation to Another

One of the biggest misconceptions in retirement today is to think that the benefits for income planning cannot be passed on to the next generation. With multi-generational family planning, the owner of the policy can benefit from all the growth and tax advantaged withdrawals of a Non MEC Indexed Universal Life policy, while at death passing on the withdrawal benefits to the named insured without closing out the policy. This allows the money saved for college and retirement planning to pass on to the family survivors without disturbing any of the benefits.

Not only can the benefits of multi-generational policies be passed on, the owner of the policy does not have to be underwritten. Instead, the named insured is underwritten in anticipation of one day taking over the insurance policy (when the owner passes), and the third generation can be the beneficiary. For example, a father that is 75 could open up a multi-generational policy with his son who is 45 (and in average health). The son would be underwritten and the policy would not pay out a death benefit until both the owner and the named insured (son) pass. During the accumulation phase, the owner would fund the policy within the thresholds of a Non MEC (in order to set up tax free withdrawals in the form of a loan). At the point of the father's death, the son would default to the owner of the policy and would have all the benefits his father had. Once the benefits transfer, the son could use that money for whatever he saw fit. He could use that money for his heir's college expenses (the father's grandkids), or simply use the money as another income stream in retirement. Down the road when the named insured passes, the tax free death benefit would be paid out to the named beneficiaries. This allows the accelerated death benefit to be paid out to the third generation, with the first two generations enjoying the benefits of the policy; thus being multi-generational.

With the absence of pensions in today's labor market, many investors are using this strategy to secure an income stream for the generations they will leave behind. With an Indexed Universal Life policy, investors know that when the market goes down the policy will guarantee them a floor rate while providing an attractive cap when the market goes up. Additionally, the policy owner can take advantage of flexible withdrawals exempt from Federal income taxes, having total liquidity, and protecting the interests of 3 generations. Lets take a closer look at how these unmatched benefits are possible.

Insurance companies can provide these financial guarantees through the unique concepts of annual reset and indexing. Annual reset allows the cash value of the policy to avoid market loss while providing a cap on what the policy can earn. Interest is credited though a method known as indexing. When participating in indexing, the insurance company is prohibited from investing the money in risky accounts such as mutual funds. Instead, they place the funds in safe money accounts, like insured bonds, to protect the money from market risk. The strategy being, its better to have a moderate return with no market loss as opposed to playing the market in a win some and lose some game. If you look at the last 15 years of the stock market, although not typical, financial products utilizing annual reset and indexing drastically outperformed the market with no downside exposure. There are several ways to allocate your funds with a named index, including dollar cost averaging, so it is important to discuss these options with a licensed representative to find the option for you and your family.

With the absence of pension plans being offered in the workplace, a Multi-genrational Indexed Universal Life policy could be the perfect fit for a family that intends on protecting money for up to three generations with just one policy. This takes a lot of the stress of college and retirement planning off the table for future generations. Tax advantaged withdrawals no longer have to vanish upon the death of the policy owner, while the next generation enjoys a moderate return with the same benefits. Not to mention that the owner of the policy does not have to be underwritten, just the named insured; allowing families to pass on living financial benefits regardless of health issues.

How Investors Are Preparing for Rising Taxes on the Horizon

Today our highest federal tax bracket is at 35 percent, which is historically low. Since 1913, the highest average federal tax bracket was above 60 percent. Considering the amount of debt we have acquired due to Wall Street’s bailout of $800 billion in 2008, and quantitative easements 1 and 2, it has become evident that tax rates have nowhere to go but up.

In the span of less than four years, we have accumulated 50 times more debt than any time in U.S. history. So the question is, what have you done to prepare for rising federal income taxes?

It’s no big secret that the last decade has been referred to as the lost decade. Trillions of dollars have been lost due to toxic assets, and investors are hoping to see any light at the end of the tunnel. Recent market concerns have been concentrated around the troubled Euro, unemployment and lack of spending. Why has little concern been directed to our mounting debt, which just recently exceeded $15 trillion?

I believe it’s because Washington is trying to establish a future political platform (based on the outcome of the presidential election) in order to deal with our debt crisis, which is causing the can to be kicked down the road.

Let’s face it, our super Congress already failed once to put the necessary budget cuts into effect. Remember, within the first year of the upcoming presidential election, our debt ceiling will need to be raised again. We all saw how messy that was this past August.

Eventually concerns within the market will be redirected to how we are going to pay back an out of control federal deficit. Both political and economic forces will be forced to take center stage to help start putting a dent into our federal deficit.

What every financial professional will eventually ask themselves is, what have I done to protect my client’s money from rising income taxes? How am I going to protect my clients from anticipated inflation with less net spendable dollars?

Rest assured, those who take measures to protect themselves against these concerns will be well equipped to protect their long term financial goals.

Indexed universal life can be a perfect remedy against the threat of rising taxes. For example, investors applaud that IUL will allow you to shelter up to and just over $100,000 per year into a tax deferred vehicle that still falls under the modified endowment contract limitations.

Over the last decade, many IUL policies have achieved more than a 7 percent average return (before any fees taken out) by eliminating market volatility, a strategy many investors are taking time to learn more about.

Investors embrace the idea that they can potentially withdrawal a portion of their funds tax free at any age without penalty. Furthermore, they take comfort in knowing that insurance repositories that offer IUL will not leverage their assets and have reserve pools in place, mandated by the state, to protect the investor’s deposits.

In these unprecedented times where our federal debt is spiralling out of control amidst a global recession, IUL is being taken very seriously by investors from all walks of life. Investors are actively pursuing avenues that will protect their future net spendable dollars and eliminate their losses from market volatility.

Everyday stereotypes that have limited the exposure of these products in the past are being erased due to the proven performance of IUL policies over the last decade. Even those financial planners’ who denounced these types of products in the past are now implementing these products into their client’s portfolios.

IUL will continue to be explored by investors for several years to come. Although they are not for everybody, IUL is a proven tool that can bring financial security into an insecure financial world.