What is Financed-Indexed Universal Life Insurance?

Here is a very short, and basic introduction into what has become a valuable component in modern wealth management, wealth retention & wealth creation. This is not an “Ultimate Guide” nor does one probably exist, since plans and products are continuously changing. There are some good things to know, and as always, some good people to involve. The product goes by many long and confusing names, and might include the words "Premium", "Leveraged" or "Hedged". Don't let the lack of a cute name distract you from the very real possibilities, or the potential benefits to you.

Financed-Indexed Universal Life Insurance is an after-tax hybrid insurance product and strategy. It takes advantage of historically low interest rates while still allowing your money to grow along with the S&P index or other favorable index.

Arbitrage is the term most often used to describe the value proposition between what you invest and what you can leverage for profit. This can play an important role in a universal life policy that maintains a large cash value. For instance, it might provide income to you while you are alive, but pay yet greater returns (currently tax-free) after your death to a recipient of your choosing.

Return on Investment

The "opportunity cost" of the money, or the cost to loan, is at a historic low. The return on investment from the broader stock market has been high in recent years. In fact, it has been somewhat greater than the cost to loan the money itself. Simply stated, the policy leverages this obvious difference, plus contributions made by you, to create a product designed to outlive you and afford your estate a considerable windfall. It does so without the burdensome taxes that can accompany many other investments and IRA products.

Of course, as with any other financial or wealth-building strategy, this is a complex financial instrument. Proper involvement of an estate planning attorney, and your CPA is essential. Further understanding the risks and rewards of this family of products can benefit you and your family for generations to come. As G.I. Joe famously says "Knowing is half the battle!"