IUL offers three major tax benefits: tax-deferred cash value growth, tax-free policy loans and withdrawals (up to basis), and an income-tax-free death benefit for beneficiaries under IRC Section 7702.
Indexed Universal Life insurance provides several significant tax benefits under the Internal Revenue Code:
Your cash value grows without being taxed each year. You do not pay capital gains taxes on interest credited to your policy. This allows your money to compound more efficiently than taxable accounts.
Policy loans are not considered taxable income as long as the policy remains in force. This is the primary mechanism for accessing cash value in retirement. Unlike 401(k) withdrawals, IUL loans do not increase your taxable income.
The death benefit passes to your beneficiaries completely income-tax free under IRC Section 101. Any outstanding loan balances are simply deducted from the death benefit amount.
The policy must be properly structured to avoid becoming a Modified Endowment Contract (MEC), which would change the tax treatment of withdrawals. Work with an experienced agent to ensure your policy is funded correctly.
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You can borrow against your IUL cash value through policy loans, which are tax-free as long as the policy remains in force. Most policies allow you to borrow up to 90% of your cash value at competitive loan rates. Read more
Yes, IUL is commonly used as a retirement income supplement. By funding the policy during working years, you can take tax-free policy loans in retirement to create an income stream that does not count toward Social Security taxation thresholds. Read more
Indexed Universal Life (IUL) insurance is a type of permanent life insurance that builds cash value based on the performance of a stock market index like the S&P 500, while providing a floor that protects against market losses. Read more
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