Would you take advantage of the flexibility of customizable life insurance premiums and face value, as well as the opportunity to increase cash value? What if you could get it without the downside risk that comes with investing in the stock market?
All of the above will be possible with an IUL insurance policy. Not everyone will benefit from this policy but in this article, we will talk about how IUL is beneficial for barbers and Hair Stylists self-employed.
What Is Indexed Universal Life Insurance (IUL)?
Those in search of little investment action along with their life insurance protection are found interested in Indexed Universal Life insurance (IUL). Also known as equity-indexed universal life, IUL is something of a hybrid vehicle.
An IUL is a type of permanent life insurance that can build up a cash value while also paying out a death benefit. Index life insurance, like other types of whole life policies such as universal and variable universal life insurance, is sold as a combination of insurance and investment.
IUL insurance policies allow you to save for retirement while still receiving a death benefit. IULs can be used as key person insurance for business owners, premium financing plans, or estate planning vehicles by people who need permanent life insurance but want to take advantage of possible cash accumulation via an equity index. IULs are advanced life insurance products in the sense that they can be difficult to explain and comprehend.
How Do IUL Benefits Barbers And Cosmetology Self-employed?
Even though indexed universal life insurance can help with a variety of personal and family financial concerns, it may also be a good fit for barbers and cosmetology self-employed. Many financial challenges confront them, and an IUL policy may be the ideal solution. If you own a business, these policies can provide you with one or more of the following benefits:
● Growth
The most significant benefit of IUL insurance is the potential for cash value growth, which can be significantly greater than that of many other types of financial products, such as conventional universal life or whole life insurance policies.
Policyholders also benefit from a crediting floor, which is typically 0 percent or 1 percent, which protects the existing cash value from market losses. The client does not participate in a negative crediting rate if the index generates a negative return. In other words, the account's original cash value will not be lost.
● Tax Benefits
The cash value grows tax-deferred, and beneficiaries receive a tax-free death benefit. In many cases, loans made against the policy are also tax-free. Because premiums are paid with after-tax dollars, withdrawals up to the number of premiums paid are also tax-free.
There are other perks as well, including guaranteed premiums, guaranteed death benefits, and provisions for long-term care and critical illness which makes the policy look more attractive.
● No Market Risk
There is no downside risk to your principal in these plans because IUL policy cash values have a "floor" – even if the underlying index that is being tracked suffers a significant loss or experiences a high rate of volatility. This means you can rest assured that your principal will be safeguarded both in the short and long term.
● Tax-free Retirement Income Supplement
Traditional retirement plans and IRAs allow for growth to be taxed deferred, but they are essentially just deferring your ultimate tax liability. Indexed universal life insurance policies, on the other hand, allow you to access your cash value tax-free for the purpose of supplementing your retirement income – meaning you have complete control over the money you receive.
Downsides To IUL
● Limited Benefits
The insurer restricts rises in the cash value. The insurer profiteers by retaining a fraction of the gains, which includes anything above the cap. The maximum interest crediting rate cap is 10% to 12%, depending on the product. The maximum crediting rate is based on the cap if the index generates a return greater than the cap.
In an unbridled bull market, the crediting rate cap may disappoint. The investor's money is then locked up in an account that may underperform other investments. In addition, the insured may not make any gains at all. A series of negative returns on the index can generate a 0% interest crediting rate for the policy.
● Taxes
If the policyholder dies while still owing money on the policy, the remaining loan funds may be subject to regular income tax. When a policy is canceled, any gains become taxable. Losses aren't reimbursable.
● Costs and Fees
Fees are usually paid upfront and are factored into complicated crediting rate calculations, which may be confusing to some investors. Fees can be exorbitant. Costs that differ from one insurer to another are also dependent on the insured's age and health.
● Charges for Mortality are Increasing
As policyholders get older, their insurance and mortality costs rise. This happens because as you get older, your death becomes more likely. Whole life insurance, on the other hand, averages the total cost over a lifetime and has a set premium payment. As a result, IULs are less expensive than whole life policies in the beginning. IULs, on the other hand, become more expensive as you get older. An IUL, on the other hand, is designed to reduce a policyholder's "net amount of risk" as they get older. By ensuring that your policy is constructed correctly, you can maximize the efficiency of your policy and reduce the risks it poses.
Conclusion
If you're a barber and cosmetology self-employed considering an IUL policy as part of your overall financial planning strategy, you should consult with a licensed professional who is aware of the type of insurance and how an IUL policy can be tailored to meet your specific planning needs.
