Are you looking for a way to set aside some extra money for your senior years, and maybe a little extra for loved ones to inherit? Most people opt for indexed universal life insurance because it offers the greatest cash value growth tied to the performance of S&P 500 index with the least risk thanks to floor rate. These indexed universal insurance policies are also designed to provide extra flexibility for policyholders. A minimum premium payment to keep the policy from lapsing is built in to make it easier to maintain life insurance in all financial situations.
The large cash value of an indexed universal life insurance (IUL) can also be accessed with partial withdrawals during retirement years, and many policyholders use it to provide supplemental income. We pulled illustrations from each of the six best providers of IULs to show exactly how their policies grow potential wealth for retirement.
Ed Slott – a renowned tax expert – on tax benefits of IUL policies
Compare quotes of 30+ IUL products
A Quick Look at the IULs of Six Top Insurers
Our six chosen insurance companies offer some of the highest cash-values in the industry. They also boast A.M Best ratings of A- or higher, indicating excellent stability and a solid economic outlook.
The potential policyholder profile used in each of our illustrations is a 37-year-old woman who is getting a policy with a $400 monthly premium. She will continue paying her premiums until she reaches the age of 65 years old. At this point, she’ll have paid up her policy and is able to begin withdrawing income from the cash-value of these accounts. Each of the insurers offer different cap rates on the potential interest earned, but to keep the results comparative each illustration is run with a set interest rate of 6%.
|Insurer||Participation Rate||Cap Rates||Floor Rates||Interest Rates on Loans||Non-Guaranteed Cash Value at 20 years||Initial Death Benefit||Annual Distribution (65-90 years old)|
|Securian||100%||-Account A: 9.75%|
-Account F: 10%
-Account G: Uncapped
-Account 1: 10%
-Variable: Varies; max 1% above fixed account crediting rate
|Penn Mutual||100%||9.5%||1%||Traditional: Adjustable; 3.4%|
|Lincoln Financial||100%||-Plus: 9%|
|Plus: 0%Conserve: 1%||-Participating: 5.5%|
-Fixed: 4% through year 10; 3% thereafter
|AIG||ML Strategic Balanced Index: Initial 100%; min. 15%|
PIMCO Global Optima Index: 80%; min. 15%
|-High Cap: 11.25%|
-High Bonus: 8%
|High Cap: 0%High Bonus: 0%Fixed: 2%||-Standard: 2.91%|
-Preferred: 1.96% – 2.15%
-Participating: 4.76% – 7.4%
|Varies; No cap; 2.75%; 12.5%||0%||-Standard: 4.25%|
The Global Accumulator IUL from Accordia earned our policyholder the largest amount of money for retirement with a cash-value of $169,981. The policy is quite generous with a 2% minimum growth rate and a 10.5% maximum cap rate. With fairly low interest rates on loans, the policyholder gets a small break when she needs to take out some of the cash-value. This policy offers the highest annual distribution from age 65 to 90 (26 years) at $25,968. Read full review of Accordia Life Insurance Company
The Eclipse Accumulator Indexed Universal Life policy offers four index options ranging from the S&P 500 to the EURO STOXX 50. It features excellent cap rates of 9.75% – 10% and a floor rate of 0%. Index Account G even offers uncapped growth rates, but limits participation to 60%. The illustration we pulled uses Index Account A with a set illustrated rate of 6%. Our policyholder was able to earn a decent $163,317 for retirement by year 20 of her policy. If she opts to receive annual distribution from age 66 to 90, she will receive $23,758 a year for 26 years. Read full review of Securian Life Insurance Company
The Accumulation Builder Flex earned the second highest cash-value at the 20-year mark of $166.203. It’s easy to see how with the relatively high cap rate of 9.5% and a minimum floor of 1%. This plan ensures that policyholders earn money in any market. The annual distribution from age 66 to 90 in the illustration is $24,507. Read full review of Penn Mutual Life Insurance Company
WealthPreserve from Lincoln Financial had grown the least amount of cash-value by the 20 year mark with $137,106. However, it does offer fairly high cap rates, even in the Conserve plan at 7.75%. The Conserve plan also offers a guaranteed floor rate of 1%, which means you’ll earn something even if the index does badly. The annual distribution from age 66 to 90 for the policyholder is $20,957. Read full review of Lincoln Financial Life Insurance Company
AIG or American General
The Max Accumulator+ offers two index options for policyholders with varying participation rates from a minimum of 15% to a maximum 100%. You’ll also have the opportunity to pick from a high cap rate at 11.25% or a bonus cap at 8%. However, the non-guaranteed cash-value from our illustration produced a similar return as the other policies when the standard 6% interest rate was selected. The annual distribution from age 66 to 90 is $21,923. Read full review of AIG Life Insurance Company
The Symetra Accumulator IUL 2.0 policy has a complex selection of options for policyholders who want choices. You can pick from three different index options with multiple participation rates for each of the indexes within each. Symetra does offer the biggest potential for growth with indexes that have no cap rate and up to 180% participation rates. Using our 6% interest rate, the cash-value at 20 years was only the fourth largest of the six policies with $159,855 set aside for retirement and annual distribution from age 66 to 90 is $22,475. Read full review of Symetra Life Insurance Company
2 Other Solid Companies for Indexed Universal Life Insurance (IUL)
In addition to the top 6 companies we recommend above, below are another 2 solid companies for your consideration if you want to have an IUL policy. These 2 companies offer great IUL product with great features. They do not make the top 6 when we compare the cash value and retirement income that they deliver based on their policy illustrations. Learn more about how to calculate cash value, retirement income, coverage, premiums, etc. in an IUL policy.
Nationwide IUL: A Strong Product with Great Features and Excellent Ratings
This is a great and solid IUL product with great features and excellent ratings. Nationwide offers several index options that you can choose from to invest the cash value in your IUL policy. It also offers a wide range of riders to attach to the IUL policy from premium overloan protection rider, to premium waiver rider, and the increasingly popular long-term care rider that will help you pay for your long-term care expenses if you need it. Nationwide also has excellent ratings on several dimensions from financial strength, customer satisfaction, and consumer complaint ratings. Read our full review of Nationwide IUL product.
Transamerica IUL: A Solid Product but High Consumer Complaint Score & Law Suits
Transamerica IUL is a solid product. However, you should be aware that the company has high consumer complaint rating score and even a few law suits on its IUL product. One strong feature of Transamerica IUL product is that the floor rate of the cash value account is 0.75%. Most companies offer a floor rate of 0% in their IUL products. This means that even in the worst years when market are declining, the cash value in your Transamerica IUL policy still earns 0.75% interest rate, which is quite significant, especially if you compare with the interest rates of your saving accounts. Another unique feature of Transamerica IUL is something they call a concierge planning benefit, which is similar to a final expense life insurance policy. On the other hand, if you are considering Transamerica IUL policy, you should know that they have a high consumer complaint rating score and even a few law suit on their IUL product.
IUL Calculator: How to Calculate Cash Value, Death Benefits, Retirement Income, Premiums, etc. in an IUL Policy
While an IUL policy offer significant benefits when used in a LIRP or life insurance retirement plan, it is often considered difficult to understand. It is not usually clear to consumers how to calculate different components in an IUL policy such as cash value, death benefits, insurance costs and fees, retirement income one can withdraw from the policy, and premiums.
Premiums play a deciding role in calculating other variables in a policy. The higher the premiums are, the higher other variables in the policy are. However, age and health condition are also important factors for insurance companies to calculate the death benefit and insurance costs in a policy. In addition, how the market or the index tied to the cash value of the policy performs in the next 20-40 years plays a significant role in calculating the cash value of the policy and how much a policy holder can withdraw from his IUL policy for his retirement income. Lastly, the insurance companies also impose their fees in maintaining and servicing the policy.
Learn more how to calculate these variables in an IUL policy with our IUL calculator.
Investing in an IUL Policy is a Good Idea for Your Retirement Plan?
An IUL policy can be considered a great investment for your retirement plan, often called LIRP or life insurance retirement plan. It offers several great benefits for a retirement plan such as a risk-free way to invest in the market, no contribution limits, no required minimum distributions or penalty for early withdrawals, tax-free retirement income, and lastly the income from an IUL policy has no impact on social security benefits. Learn more why investing in a IUL policy can be a good strategy for your retirement plan.
However, in some cases, it might not be the best option for your retirement investment, especially if you don’t need financial protection for your loved ones if and when you pass away. So make sure you consult with an advisor to build out your retirement plan.
The Pros and Cons of IUL or Indexed Universal Life Insurance
Indexed universal life insurance or IUL is a great product if you want to combine financial protection with retirement savings or if you enjoy the flexibility of converting the death benefit benefits to retirement income if you need it. IUL offers several benefits and drawbacks. Its main benefits include:
- Allow you to enjoy the upside of the stock market while protect you from the market decline
- A unique product that offers you the flexibility of financial protection for your family and retirement savings if you don’t need financial protection anymore
- When you withdraw from an IUL policy for retirement income, it is completely tax-free
On the other hand, IUL is often considered complicated to understand and to incur higher fees and charges compared to other retirement products such as 401K or Roth IRA. However, we often forget that unlike 401K and Roth IRA, IUL provides permanent financial protection for our family if something happens to us.
IUL vs. 401K: Which is Better for Retirement Savings?
Both IUL and 401K are great options for your retirement savings. They each has strengths and weaknesses and can work independently or complimentarily to each other in your retirement plan. You can see more details in our in-depth analysis and comparison between IUL and 401K to see which is better for your personal retirement savings plan. Below is the key rules of thumb:
- If your employer offers 401k account and some contribution match, make sure you contribute to your 401K account to maximize your employer’s match first. This is free money for your retirement account, so don’t leave any penny on the table.
- If you want to combine financial protection for your loved ones when you pass away and your retirement plan, ie. if you don’t pass away early, therefore your loved ones don’t need the financial protection you set up for them, you can “convert” the financial protection benefit into your retirement income, IUL is an excellent choice in this scenario.
- If you already max out your 401K contribution and are likely to be in high tax bucket when you retire, an IUL policy allowing you to withdraw a significant amount of your retirement income is an excellent strategy since retirement income from an IUL policy is completely tax-free.
- Lastly, if you are not financially savvy enough to manage investments in your 401K account and very risk averse, an IUL policy a great option for you since IUL offers a risk-free way to invest in the market and you don’t have to do anything, except paying your monthly or annual premiums.
Ed Slott – a renowned tax expert – on tax benefits of IUL policies
Compare quotes of 30+ IUL products
IUL vs. Roth IRA: Which is Better for Retirement Savings?
Roth IRA is another great financial product for your retirement savings. How is it compared with IUL product for retirement savings? See our comprehensive analysis of IUL vs. Roth IRA to determine for your personal situation which is better for retirement savings.
Both IUL and Roth IRA offer a great benefit which is tax-free retirement income. When you withdraw from either an IUL policy or a Roth IRA in your retirement, your retirement income from either account is 100% tax-free. However, they have significant differences, some of which are highlighted below:
- There are income limit eligibility, maximum contributions, required minimum distribution, and penalty for early withdrawal from a Roth IRA account. There are no such things in an IUL policy. However, there are ways around these constraints in a Roth IRA account. For example, a Backdoor Roth IRA with Vanguard can be a solution to income limit eligibility for a Roth IRA account.
- If you don’t need financial protection for your loved ones regardless how young you are when you pass away, an IUL policy might come with higher costs since part of your premiums will be used to buy the death benefit for your loved ones.
- While an IUL policy is a risk-free way to invest in the market, Roth IRA account can offer you a wider investment selection if you are financially savvy enough to manage the investments in a Roth IRA account.
IUL vs. Whole Life: Which is Better?
Before IUL was introduced in 1980s, whole life insurance product, especially dividend paying whole life insurance policies, had been served as a good retirement savings vehicle. In our assessment, if you look for a LIRP or life insurance retirement plan, IUL is a much better choice than whole life insurance due to the following main reasons;
- IUL allows you to earn interests based on the market performance while you earn a low guaranteed interest rate usually 1-3%, plus dividend payment based on the performance of an insurance company. Essentially, with IUL policies, you earn interests like investing in an total market index fund like an S&P 500. On the other hand, you earn a low savings account interest rate, plus some dividend based on the performance of one company. We have learned that it is almost impossible for any single company to perform better than the entire market in a long run. That is the reason why Vanguard index fund has become a phenomenon in the past decades. And that is the reason why you almost always have a better cash value account and a more retirement income from an IUL policy than a whole life policy.
- IUL offers greater flexibilities in managing the policy from selecting different indexes to moving money from the cash value account to pay for monthly or annual premiums if you have a difficult year to reducing the death benefit so that you can maximize retirement income from the policy.
For a more comprehensive analysis of the differences between IUL and whole life insurance, see our article IUL vs. Whole Life Insurance: Which is Better?
- The top six IUL insurance companies listed offer high cap rates, low loan interest, and floor rates of 0% or higher.
- The highest cash-value growth and annual distribution to supplement retirement income came through Accordia and the lowest came from Lincoln Financial.
- Symetra, AIG, Lincoln Financial, and Securian all offer multiple index options for policyholders.
- Accordia also boasted the most generous floor rate of 2% interest on its Global Accumulator IUL.