Leaving a legacy is one of the top priorities for many people. The death benefit proceeds from a life insurance policy can be an important financial resource for your loved ones, allowing them to address a number of needs, including debt, college funding or other financial obligations.
But what if you could provide your beneficiaries with a similar type of financial assistance while you're still alive, all in a tax-efficient manner? Wouldn't that be nice?
While some may choose to pass a legacy to beneficiaries through their life insurance death benefit, it may be appropriate for you to choose to pass on wealth to your loved ones while they are still living - and possibly while it can help them sooner than later.
Let’s take a look at a hypothetical example to see how an you could use an Indexed Universal Life (IUL) policy to assist your loved ones before your death, and use that policy to help those family members build a more stable financial future.
Exploring The Additional Benefits Of IUL
Suppose you have a daughter that's married with a 2 year old granddaughter. Given the rising cost of college, your daughter and her husband (the parents) are concerned how their going to fund the granddaughters' college education. They are putting money away for their retirement but can't seem to save much for college.
You want to pass on wealth to your daughter and her family. You have planned well for your retirement, so you are financially able to help without jeopardizing your own financial future.
Your financial professional (Strategic Wealth Partners) and tax advisor suggest that you and your spouse gift $15,000 for the next 17 years to your daughter, which she will use to pay the premium on an IUL policy.
This will provide the immediate death benefit protection for her family (if needed in near future) — as well as the opportunity to build accumulation value. Any available cash value can then be accessed through policy loans or withdrawals to help supplement a wide range of future financial responsibilities, including college expenses.
In this scenario, the IUL policy - funded by a $15,000 annual gift may be able to provide the following financial benefits after 20 years, when graduates from college. (This hypothetical example is for illustrative purposes only and does not represent actual clients. It is only one example of how this strategy could work.)
Pay college tuition, room & board
Pay back any student loans
Pay off their mortgage
Remaining cash to supplement their retirement income
People Today Are Struggling
Multiple reports demonstrate that many people are currently struggling with different aspects of their finances, including student loan debt, credit card debt and general lack of retirement savings. Consider the following:
Student loan debt. There are 45 million borrowers who collectively owe more than $1.5 trillion in student loan debt in the U.S. Student loan debt is now the second-highest consumer debt category — behind mortgage debt — and is higher than both credit cards and auto loans. Borrowers in the Class of 2017, on average, owe $28,650, according to the Institute for College Access and Success.
Credit card debt. Total U.S. credit card debt was $868 billion in second quarter 2019, a 4.7% increase from the same time the previous year, according to a report published by The Motley Fool. As of June 2019, the average credit card debt per U.S. household was $8,398.
Lack of retirement savings. According to a study from Transamerica, median retirement savings for American workers sits at around $50,000. A recent report from the Federal Reserve found that nearly a quarter of all American adults have no retirement savings or pension at all.
These are alarming statistics underscoring the idea that many people need help with these financial challenges sooner rather than later. Index universal life insurance can provide necessary death benefit protection as well as accumulation potential that can be a financial resource for loved ones in the near future and potentially for generations to come.
As this example shows, an IUL policy can be a powerful way to help you provide for your children now and start a solid foundation for the next generation as well. With the combination of financial protection, tax benefits and loan flexibility, IUL can be a great way for you to accomplish multiple goals. And the best part of this legacy strategy is the fact that you can still be around to experience the positive impacts of their gifts.
Reach out to us at 949-270-2779 to see how we can help you and your family.