Why is Universal Life Insurance a Safe, Comprehensive Core Financial Asset?

According to a recent article in the Wall Street Journal entitled "Consumers Pile In to Life Insurance With Investment Aims", more focus and attention is being given to the flexibility, safety and long-term living and legacy benefits offered by various forms of permanent life insurance policies. 

Fixed Index Universal Life (FIUL) is a type of permanent life insurance that accumulates cash value over time.  Structured properly by a state licensed insurance agent with specialized expertise, what is known as "maximum funded" FIUL is an effective way to provide both a safety net for the family and supplement the cash funding that will be necessary for date-certain events such as college tuition and retirement income with the following advantages: 

- Safety of Principal

- Locked-in Gains

- Tax-Deferred Growth

- Tax Free Distribution (see explanation below)

- Tax-Free Death Benefit

- Liquidity to Protect Equity in a Home or Business

- No Dollar Amount Restrictions on Funding

- Not Subject to IRS Penalty Fees for Early Withdrawals Prior to Age 59 1/2

- No Required Minimum Distributions

In terms of reliability, FIUL policies are issued by the same companies you rely on to insure your health, homes and businesses. 

The cash value of a FIUL policy grows using a combination of the "indexing method"  and competitive fixed rates of return that are declared annually.  When using the index method, growth of the account value is tied -- for crediting purposes only -- to a major market index like the S&P 500 or Russell 2000.  However, the cash value of the policy is never directly invested in or exposed to the market.

Supported by the safety features mentioned above, the power of the indexing method is that the market works in your favor when the cycles are positive, while automatically eliminating the possibility of the cycles working against you when they take their turn on the negative side -- particularly at the wrong time in life.  This is a hard lesson that has been repeating itself for far too many people over the past two decades.

Yes, when the cycles are positive you will earn a lower rate of return because you have elected to pay essentially a premium for growth with safety -- compared to growth with risks -- which will eliminate the destabilizing and debilitating effects of compound loss.  However, based on the Core Principle of Financial Conservation, by eliminating the negative growth impact of compound loss from the financial equation along with the other advantages of FIUL, you will be way ahead over the long run and have the peace of mind that comes with financial stability.

Sections 7702, 72e and 101a of the Internal Revenue Code allow the cash value inside life Insurance contracts to: 1) accumulate tax-free, 2) be accessed (including the gains) in the form of withdrawals and policy loans for retirement or other income purposes tax-free, and 3) be transferred income tax-free at death, when properly structured under tax citations TEFRA/DEFRA and TAMRA.

Finally, the cash value in a FIUL policy has liquidity that is immediately available if necessary for unanticipated short-term needs.

Financial Conservation For Kids!

Visit our Kids page where you will find a full presentation of how Fixed Index Universal Life Insurance can give your child a financial foundation, safety net and early head start in life.  Please pass it on to families and friends.  Children Life Insurance.

 

The 401(k) Question: Taxes on your Seed Money or Harvest Money?

Think of the tax-deferred contributions you would make to a qualified account such as a 401K, IRA, 403B as your "seed money."   Your "harvest Money" would be the sum total of contributed principal and interest growth over the period of time you are investing in these accounts.

With the traditional qualified plan approach, taxes are deferred until years later when you start or are required through IRS mandated Required Minimum Distributions to begin liquidating these accounts.  In what appears to be a rising tax environment where you may have to pay a higher tax rate in the future -- or even if tax rates were to remain level -- you will pay more taxes later on the larger amounts of the harvest money.  For most people, that means at a time in life when you have passed your prime earning years and are relying on fixed income from your retirement savings. 

When thinking about the change in approach from qualified to non-qualified, important factors to consider are: your age; levels of matching contributions from your employer; and the type of investment options available in an employer plan.  Some employers are reducing or eliminating their matching contributions, and the investment options they provide that meet the safety standards of Financial Conservation may be limited.  In the case of Roth conversions, careful consideration should be given to the tax liabilities that will be created.  Also, be aware that the rules governing qualified plans and Roth conversions are changing -- you need to stay informed.

Uncle Sam thinks long term, so why shouldn't you?  With the qualified plans, he's more than happy to give you a tax break now on your seed money, knowing he has a lien on these accounts that will yield a much bigger payday later when you start tapping into them and he gets to tax the larger amounts of harvest money.  And, of course, there's the potential that he can also change the rules to suit his needs, so think about getting "grandfathered-in."

On the question of tax breaks, you can only get two of the following three: tax-deductible contribution; tax-deferred accumulation; or tax-free distribution. The qualified plan approach gives you the first two.  Which two out of three would you prefer?

FIUL gives you the second two, not to mention the additional benefits of growth with safety and flexibility outlined above. 

CBS 60 Minutes Segment - "Retirement Dreams Disappear With 401(k)s"

Time Magazine and MSNBC - Why It's Time to Retire the 401(K)  (3 min. interview)

 

Inflation & Interest Rates

To maintain purchasing power, the interest you earn on your money will, at the very least, need to keep growing ahead of inflation. The ebb and flow of interest rates are in part a function of the prevailing rate of inflation. If as a result of current governmental policies we are anticipating a rising rate of inflation in the years to come, laddering is one method where you are not committing a large portion of your assets at any one time and are able to maintain flexibility as interest rates fluctuate. Here's how it works:

Market Watch Article - “Inflation Hits Hard When You Can Least Afford It”

 

Extended Family Plan

Providing financial security for the younger and older generations in the face of any future market, global and human uncertainties is of growing concern for many families. Based on standards of Financial Conservation, the goal of such planning is to pool and leverage with safety combined family resources in order to accomplish the following:

Every family has its own story. We look forward to spending the time necessary to familiarize ourselves not only with financial details, but, of course, the more important human elements that are unique in each and every situation.

 

Strategy of Side Funds

Learn the strategy of optimizing and protecting the equity in your property by separating and placing a portion of it into a side fund that meets the safety requirements of Financial Conservation. By repositioning part of your equity in this manner, it is now able to earn a rate of return; you have flexibility and liquidity with that equity that you did not have before; and the separated equity is shielded from depreciation during any down cycle in the market. FIUL policies described above are often utilized for this strategy.

Email: Michael E. Douroux, Founder

CA Insurance Lic. No. 0D78620