Finance Forward 
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Tax-Advantaged Retirement Planning

Chris Burt
Sr. Partner

Planning for retirement can seem daunting with so many complicated options and ideas floating around. The goal is simple: accumulate as much money as possible. But how?

First, you want a product that provides substantive returns. Then, protecting

those gains from taxes will accumulate money more rapidly by compounding interest.

Life insurance is one of several structures that defer taxation of gains. But, older whole and fixed universal life policies sometimes fell short of expectations in their ability to return competitive interest gains. In the last decade, these policies have been replaced by a better alternative: Indexed Universal Life Insurance (IUL).

These newer policies credit interest to your cash account based on the performance of various stock market indices. This allows greater cash accumulation, and it has made these products competitive with other retirement planning options. The combination of stock market returns and compounding interest by deferring taxes has strengthened the role of life insurance in a well rounded financial plan.

How can IUL help you with income replacement, retirement planning, and tax deferment?


Life insurance is most often used to replace income for dependents. Term insurance meets this need because it is the most affordable, and because it is needed only while you have dependents. IUL meets this need, as well as your needs for retirement and estate planning.


With an IUL policy geared toward accumulating cash, your death benefit will normally increase. This coincides nicely to the time of your life when you’ll have the most financial responsibility for dependents. At retirement, this need for a large death benefit generally wanes, while your need for income and security increases.

Your IUL policy enables you to reduce your death benefit and pull retirement income from your cash account. Because your account has been compounding tax-free, and the returns have been tied to stock market indices, you have positioned yourself for a competitive retirement income.


Here’s where the tax-advantaged structure of life insurance excels: under current tax law, you needn’t pay any taxes on these income disbursements as long as the policy remains in force. (Consult your tax advisor for details.)

Manage your disbursements carefully. If you take too much, your policy might lapse, thus subjecting your gains to taxation. To avoid this, some policies offer "no-lapse" riders. Such a rider will automatically pay up the policy with the remaining cash value. This freezes the remaining death benefit for life before the policy can lapse.


Competitive returns were the missing piece of a puzzle already replete with tax advantages. Indexed Universal Life Insurance, which provides this missing piece, is a new and powerful tool for prudent retirement planning.

Watch for our future articles on the use of life insurance for estate planning.

Thinking of Dropping a Life Insurance Policy? Know this...
If you are getting out of a life insurance policy with cash values, you may be subject to taxation on the cash value gains. However, you can protect your gains from taxation through a 1035 exchange. This allows you to move your cash account from a less suitable policy into a new life insurance policy with no tax ramification.
You could pay up a new policy for life and/or accrue interest in an IUL policy with better returns and still access the cash through non-taxable disbursements. While the temptation may be to get at the whole pie all at once, doing so will cause you to unnecessarily lose money to taxes and lose out on the interest returns.
If you have no desire to obtain new life insurance, then you should discover the hidden value of your policy on the life settlement market. Investors are paying cash settlements in excess of cash values for policies on people over age 70. This includes term policies. If you are over 70, you should ask an agent to determine the value of your policy.


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