Retirement Planning with Index Universal Life Insurance

We often think of life insurance as planning for our deaths, but modern life insurance products can also be used for retirement planning. Combination insurance and investment products were first introduced when insurance companies noticed people were opting to invest their money rather than purchase life insurance. There are now several combination products to choose from. In this article, we take a look at retirement planning with index universal life insurance.

What Is Index Universal Life Insurance?

In a nutshell, index universal life insurance contributes part of your premium to life insurance coverage and invests the rest in an equity index account. Your account accumulates in value over time both from your additional contributions and from market growth. As with any investment mechanism, there is also the potential for market declines, which would reduce your projected account value. You can borrow against the account value and either pay it back or have the balance owed deducted from your death benefit.

Policy Example

The following is an example of an actual Index Universal Life Insurance quote for a healthy 41-year old male with a $500,000 life insurance policy:

Year Total Premiums Paid to Date Accumulation Value Surrender Value Death Benefit
1 (Age 41) $7,314 $4,422 $0 $504,422
5 (Age 45) $36,568 $23,714 $9,402 $523,714
10 (Age 50) $73,135 $51,381 $51,381 $551,381
20 (Age 60) $146,270 $142,680 $142,680 $642,680
25 (Age 65) $182,838 $196,953 $196,953 $696,953
30 (Age 70) $182,838* $215,779 $215,779 $715,779
40 (Age 80) $182,838* $213,095 $215,779 $713,095

*No additional premiums paid after age 65.

The above chart shows how much is paid in premiums and estimated account growth. The accumulation value is the balance of your investment. The surrender value is what can be borrowed against or received if the account is closed. It is less in the first several years due to the fees charged. The death benefit combines the accumulation value and $500k life insurance amount.

Example of Retirement Planning with Index Universal Life Insurance

So, how can you use this for retirement planning? Let’s assume that the market performs as estimated in the above chart. The 41 year-old male in this example would have approximately $196,953 at age 65 or $215,779 at age 70. He could borrow from that value to fund his living expenses during retirement. Any amounts borrowed would no longer be invested and therefore would not grow any further. Borrowed funds can be repaid (with interest) or reduced from the final death benefit.

Important Notes & Disclosures

The above is simply one example of an Index Universal Life Insurance quote and should not be considered applicable to your personal circumstances. Contact a local life insurance agent for a quote on this type of policy and to compare it to other alternatives. Retirement planning with Index Universal Life Insurance is just one of many options to consider. There are important risks and policy terms that are not covered above but that can be explained by your insurance agent. Retirement and estate planning should be considered as a whole to work effectively. At Simmons & Schiavo, we can develop an estate plan that fits your specific needs and work with your financial planner and insurance agent to achieve your financial goals. Contact us to schedule a consultation.

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