When selling Indexed Universal Life (IUL) insurance policies, knowing how to structure them properly is critical for meeting your clients’ long-term financial goals. Whether they want to maximize cash value or prioritize death benefits, the strategy behind structuring an IUL can significantly affect their outcome. Here’s a guide to help insurance agents and brokers structure IULs effectively and position themselves as trusted financial advisors.

Understanding the Basics of IUL

Indexed Universal Life (IUL) is a type of permanent life insurance that offers both death benefits and the potential for cash accumulation based on the performance of a stock market index, like the S&P 500. IULs are appealing for clients looking for flexibility in premiums, death benefits, and growth potential without the risk of directly investing in the stock market.

Cash Value vs. Death Benefit: What’s the Priority?

When structuring an IUL, one of the first things you need to determine with your client is their primary goal—maximizing cash value or ensuring the highest possible death benefit. Understanding this will help you choose the right strategy.

1. Maximizing Cash Value

If your client is more interested in building a substantial cash value for future use, either for retirement income or to access in emergencies, you’ll want to structure the IUL in a way that maximizes that potential.

Here’s how to do it: 

• Lower the Death Benefit: A lower death benefit means a larger portion of their premiums will go toward the cash value rather than covering the insurance cost.
• Overfund the Policy: Have your client pay more than the minimum premium. The excess goes directly into the cash value, allowing it to grow over time.
• Use the Correct Indexing Options: Most IULs allow clients to choose from different indexing strategies. Choosing options with a higher participation rate and cap can help maximize growth potential.
• Monitor Loan Provisions: Educate clients on policy loans as a way to access their cash value without tax consequences. Understanding when and how to use loans wisely is key to maximizing benefits.

This approach works best for clients looking for retirement income or who wish to grow a tax-advantaged savings account.

Related: How to Generate Infinite Banking and IUL Insurance Leads >>

2. Prioritizing Death Benefit

For clients who want to secure the highest death benefit possible, your strategy will be different. Here, the goal is to offer substantial protection for their beneficiaries.

Key strategies include:

• Higher Initial Death Benefit: Set a higher death benefit to ensure your clients’ loved ones are financially secure after they pass.
• Minimum Premium Payments: Paying only the required minimum premiums ensures that more of the premium funds go toward maintaining the death benefit.
• Guaranteed No-Lapse Riders: Add a no-lapse guarantee rider to prevent the policy from lapsing, even if cash value drops to zero.

This approach is typically suitable for clients who want to provide a large inheritance or protection for their family’s financial future.

The Impact of Fees and Expenses

Clients should be aware that IUL policies come with a variety of fees, including administration fees and mortality charges. These costs can eat into the cash value accumulation if not properly managed. Help your clients understand the fee structure and make sure they are comfortable with it.

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Choosing the Right Indexing Strategy

IULs offer various indexing options for cash value growth. Educate your clients on the different strategies available:

• Annual Point-to-Point: This measures index growth over the course of a year and is commonly chosen for clients looking for moderate growth potential.
• Monthly Point-to-Point: This allows clients to capture gains more frequently, but often comes with lower caps on returns.
• High Par, Low Cap Strategies: For risk-averse clients, this strategy offers more stable, although lower, returns.

Make sure your client is aware that these returns are subject to caps and participation rates, which limit the upside potential, but they are still protected against losses in a downturn.

Benefits of a Well-Structured IUL

When an IUL is structured properly, it provides:

• Flexibility: Clients can adjust premiums and death benefits as their needs change.
• Tax-Free Growth: The cash value grows tax-deferred, and withdrawals can be tax-free if structured properly.
• Downside Protection: Clients don’t lose money when the market performs poorly, thanks to a zero-floor guarantee.

Key Takeaways:

• Define Client Goals: Whether they want to maximize cash value or death benefits will determine how the IUL is structured.
• Overfunding for Cash Value: For clients interested in growth, lower the death benefit and overfund the policy.
• Death Benefit Focus: Clients looking for protection should prioritize the highest death benefit and consider no-lapse riders.
• Understand the Index Options: Helping clients choose the right indexing strategy can maximize their return potential.
• Be Aware of Fees: Educate clients about fees that could impact the policy’s growth.

Properly structuring an IUL can serve as a powerful financial tool for clients looking to balance protection and growth. It’s essential to ask the right questions, understand their goals, and build a plan that meets their long-term needs.

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