We’ve all heard the expression, “Cash is king.” While that might have been true at one point, we find ourselves favoring a different monarchy. Cash isn’t king to us – liquidity is king. Liquidity liberates individuals and frees them to take advantage of financial opportunities as they arise, which is why liquidity terms are an important component of a financial vehicle.
For example, by having access to liquidity during a market pullback, individuals can purchase appreciating assets at a discount because they have access to those funds. Likewise, when done so within an IUL, we don’t disturb the cash value growth of the contract and the client is still earning uninterrupted compounded interest on the policy even though it is being used as a collateral source.
This is something I’ve been talking about more with both advisors and clients. A properly structured IUL is often praised as a supplemental tax-free retirement vehicle with life insurance and asset protection, and while this is true, those aren’t the only advantages it offers. IUL policies feature favorable liquidity terms and while there are other institutions clients can borrow from, loans from insurance companies using IUL cash value as collateral are generally more favorable.
With loans from IULs, there are no qualifications, no loan underwriting, no payment terms, and generally no added fees. Essentially, the IUL loan is ‘unstructured,’ allowing the client to pay the loan off on their own terms or instead accrue and let the death benefit pay off the outstanding loan balance upon death. Lastly, we would expect a long-term positive arbitrage between the borrowing cost from the insurance company and the indexed returns of the policy.
As mentioned earlier, we often position IUL as a supplemental tax-free retirement vehicle with life insurance and asset protection, but IUL’s additional liquidity advantages become even more relevant in the context of recent events. In June of 2001, 30-year mortgage rates peaked at 7.24% and as of this past week, we nearly matched the 22-year high as rates jumped to 7.23%.
With inflation driving up the cost of living and higher interest rates affecting large capital purchases, having access to liquidity can make a big impact on an individual’s financial freedom. This is why the implementation of a properly structured IUL with favorable liquidity and loan rates can be more beneficial than alternatives.
To illustrate this, I’ve included a list of the loan terms of our top IUL carriers as well as alternative bank loan options that may be available. Notice that not only are the IUL loan rates much lower than the loan terms, but they are also significantly more favorable.
Note: Bank loan rates using Bankrate.com and assumes a high credit score.
In conclusion, recent events emphasize the importance of having access to liquidity and IUL provides a great option for those looking to do so. If you’re interested in adding a properly structured IUL to your clients’ holistic financial plans, reach out to your FSR at (888) 543-3776.
Contact LifePro Today!
If you are looking for a partner who cares about your clients as much as you do, please reach out to LifePro Financial Services at 888-543-3776. We are a premier IMO located in San Diego, CA that has been in business since 1986 and was originally founded by William Zimmerman.
This material is intended for educational purposes only and is not intended to serve as the basis for any purchasing decision. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. The hypothetical example is shown for illustrative purposes only and is not guaranteed. The characters in this example are fictional only. Your actual experience will vary. Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse or affect any guarantees against lapse. Remember to consider your client's individual circumstances and objectives when discussing their specific situation. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of the unrecovered cost basis will be subject to ordinary income tax. Withdrawals are generally income tax-free unless the withdrawal amount exceeds the amount of premium paid. Tax laws are subject to change. Clients should consult their tax professionals. Investment advisory and financial planning services are offered through LifePro Asset Management, an SEC Registered Investment Advisor. Registration does not imply a certain level of skill or training. Investments involve risk.