Index Life Insurance vs. The Standard Term
What is Index Life Insurance? Index life insurance polices typically guarantee both the principal amount and the interest rate in the invested part but restrict the maximum amount that a policyholder can get from said policy. Since these kinds of policies are often viewed as a hybrid between an ordinary permanent life policy and a term life policy, they tend to be less expensive, and thus are more stable than an ordinary permanent life policy. And since there are no specific minimum requirements for these kinds of policies, a wide range of combinations with similar benefits and features are possible.
When setting up your index annuities for retirement planning purposes, be sure to use those with the highest lifetime income index. If you are young (and do not yet have a retirement plan), the highest indexed life insurance benefit should be enough to cover your living expenses during your early years, while you build up your dependents’ lifetime income. The lifetime income should also be high enough to support your dependents’ needs as they begin their own lives as parents or other supporting adults. If either of these assumptions does not fit your situation, consider starting your savings strategy toward the middle of your projected life instead, saving more money for your retirement later.
How should you set up your life insurance for retirement planning? If you currently have an indexed universal life policy that will go ahead as part of your retirement planning, simply continue to pay the premiums. You will only need one account; if you have two or more accounts, each can be held separately. If you already have an annuity for your life insurance proceeds, make sure you stop paying the premiums on it while you are still working, since any amount that you withdraw will be taxed as income by the government.
Do not withdraw any of your funds until you retire. Your death benefit is usually less than the amount you would withdrawal, so the most you should do is to invest the difference. Your investments may include your 401k, IRA, Self-Directed IRA, a traditional IRA, a Roth IRA, or other investment vehicles. If you are eligible, you may also withdraw a portion of your Social Security disability payments and/or a portion of your survivor’s benefits. Talk to a financial planner about which options might be best for your individual circumstances.
If you do not yet have a retirement plan that will take you out of work when you retire, you may want to consider including a nonqualified or universal default option as part of your indexed universal life policy. Your death benefit is usually equal to the least amount of your life insurance proceeds. When you take this option out, you stop paying taxes on it until you take it out again at retirement age. In this case, you will receive the highest return unless your investments are better than your death benefit.
Some types of policies include: term premium, whole life, term universal, convertible, reverse tiered and hybrid annuity. These can be customized with additional features. For example, you can select riders that pay taxes only during certain periods, riders that give you extra cash back when you reach retirement age or riders that let you choose between CDs and stocks. Talk to a financial planner about what riders would work best for you. Some riders will cost more than others.
There are some things you should consider when comparing indexed annuities vs. the individual policies. The most important thing is the type of insurance company you are looking at. If you are not sure which one to start with, you should ask your financial planner for their advice. He or she will be able to recommend which company has the best products for your needs. They will also be able to explain the differences between the different types of policies and which ones are best for you.
Indexed annuities provide you with a way to build a substantial and lucrative retirement fund without having to save very much. Hybrid annuities provide extra income during your retirement years. Universal indexed annuities provide you with the security of a traditional pension, while still giving you the option of making larger withdrawals. With these options, you will have more money to take with you when you retire.