Index Universal Life Insurance
Posted: Mon May 02, 2011 2:56 am
I have a question about Index Universal Life Insurance as a tax-advantaged way to save for retirement, and I'm hoping some of you might share your thoughts on it.
My wife works for a small company that does not offer a 401(k) plan or any other tax-advantaged retirement savings plan. She maxes out her IRA contributions each year but would like to invest more for retirement, in a tax-advantaged way if possible.
One of her relatives is an insurance salesman. She told him about her situation, and he now wants to sell us Index Universal Life Insurance from his company. Here's what I know so far about the plan he's selling:
Would the tax benefits of an Index Universal Life Plan like the one above make it superior to, say, simply implementing a PP in a fully-taxable account?
My wife works for a small company that does not offer a 401(k) plan or any other tax-advantaged retirement savings plan. She maxes out her IRA contributions each year but would like to invest more for retirement, in a tax-advantaged way if possible.
One of her relatives is an insurance salesman. She told him about her situation, and he now wants to sell us Index Universal Life Insurance from his company. Here's what I know so far about the plan he's selling:
- Policyholder contributes to a cash account
- Cash account earns a return based on investments the insurance company makes on the policyholder's behalf
- Insurance company's investments are ~85% corporate and government bonds and ~15% options (unclear what the options are, but I assume they're something like leveraged stock market indexes).
- Cash account's return has an upper cap of 12-15% and a lower cap of 1-2%
- Payments that go into the plan are after-tax dollars, but the distributions are "tax-free" because, instead of income, they are technically loans against the cash account that are not repaid with interest until the policyholder passes away.
- Cash account is not drawn down (in the usual sense) during retirement. Nothing is removed from the cash account until the policyholder passes away; at that point, the loans and interest are subtracted from the cash account.
- Any funds remaining in the cash account after the policyholder passes away and the loans & interest are repaid goes to the beneficiaries tax-free, without having to go through probate.
Would the tax benefits of an Index Universal Life Plan like the one above make it superior to, say, simply implementing a PP in a fully-taxable account?