Submitted by AnnuityCampus on Tue, 12/27/2011
The problems associated with America’s educational system will be debated till the trumpets sound. However, when it comes to basic financial education America’s knowledge of how money works and the effects of bad decisions can be felt for multiple generations. Working people are still under the impression that a mutual fund, stock, and bonds are the only instruments available for long term funding of their retirement accounts.
Risk:
Everyone understands that when you invest in securities that there is some inherit risk. But why would anyone in their right mind invest their future retirement funds into risk investments if they could lose their money? The reason why many working people do this is because they do not know that there are alternatives like whole and indexed universal life insurance policies do not invest in the stock market.
These policies either pay their policy holders a dividend or pay a return based upon a market index such as the S&P 500. Indexed universal life insurance policies allow you to make up to a declared cap of the S&P but none of the downsides when the market goes down.
For example, when the market goes up you might be capped at 12% but when the market goes down you will get a $0 on your statement. In addition, these policies usually have a yearly guarantee of 1-3%. So not matter what happens you will see a positive number on your annual statement.
Fees:
We also know that fees can have an effect on future returns. Most people have no idea what fees they are paying on their mutual fund accounts. Some of the fees cannot be stated in advance because a roll over ratio is not known to the fund rolls over the portfolio in order to make a profit.
On indexed universal life insurance policies there are no roll over ratio fees, management fees, or any other fees. There is a cost of insurance because at the end of the day, there is a death benefit associated with all life insurance policies.
Tax-Free Withdrawals:
We have now come to the most important aspect of indexed universal life insurance policies. With your current mutual fund accounts the growth is tax-deferred but when you take it out all gains is taxed at the time when you need the money the most.
You see, the government wants you to take the money you deferred all those years because they want the tax money. Even if you do not need the money they will make you take payments (Required Minimum Distributions) at 70 ½.
The distributions from life insurance are not taxed at all. The reason for this is that distributions for life policies are considered a policy loan. You are not penalized for a pre- 59 ½ IRs early withdrawal penalty. You have access to your cash value at any time for any reason and your will not be penalized or taxed.
Recap:
Indexed Universal Life Insurance policies have the following features and benefits:
• Tax Deferred Growth
• Tax-Free Withdrawals
• No Risk
• No Management Fees
• Liquid
If you are currently funding a mutual fund on a monthly basis, it might worth your time to consider reallocating your resources to an indexed universal life insurance policy. You will be glad you did. You should also consult with a qualified life insurance broker who will be able to structure the best tax-free retirement strategy to fit your needs and goals.
Read more: http://www.advisorworld.com/2011/12/27/indexed-universal-life-insurance-bank-yourself#comment-316#ixzz1u8PMvpqN
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