Key Benefits
IUL insurance is a type of permanent life insurance that offers a death benefit and a cash value component. This cash value can grow based on a stock market index, such as the S&P 500, without being directly invested in the market. This structure provides downside protection with a floor of 0%, ensuring no loss during market downturns.
- Advantages: The main advantage of a child life insurance is the long-term growth potential due to compound interest. This setup offers financial security as they grow, combining cash value accumulation with life insurance benefits, all within a tax-advantaged framework.
- Flesxible: IUL policies offer flexibility in adjusting benefits and premiums to suit changing financial circumstances.
- Wealth Building: Premiums paid into an IUL policy increase the cash value, which can grow substantially over time. This growth can be used for various expenses, including college or retirement.
- Tax-Free: The cash value in an IUL can be accessed tax-free through policy loans, which do not count as income.
- Lifetime Coverage: Once established, an IUL provides lifelong coverage, even if the insured becomes uninsurable later in life.
- Parent Requirements: Parents must have at least twice the life insurance coverage on themselves as they intend to secure for their child. For example, if a child has a $125,000 policy, the parent must have at least $250,000 in coverage.
Top Questions
The benefits of child life insurance go beyond just providing financial security for your loved ones. Here are some additional benefits:
- Is and IUL better for a Parent or Kid? Prioritizing an IUL for the parent is advisable since it provides for the child's needs if the parent passes away. It also ensures the parent’s retirement savings are on track. The premium for a child’s policy is typically lower, but the amount of coverage and cash value growth is proportionally higher due to the longer time horizon.
- Is an IUL a good investment for Kids? An IUL can be a strong financial tool for children, offering benefits like a built-in death benefit, tax-free distributions, and no stock market risk. Unlike qualified retirement plans, IULs do not have age restrictions for accessing funds.
- Which is better 529 College plan or an IUL? While 529 plans are restricted to educational expenses, an IUL provides more flexibility. IULs do not count as assets on the FAFSA, potentially affecting financial aid less than a 529 plan might. Additionally, IULs offer downside protection against market volatility, unlike 529 plans.
- Charitable Giving: Do you have charitable giving goals that you wish to continue even after passing? Life insurance can provide the necessary funds to continue giving in your name.
- Can Grandparents purchase for grandkids? Yes, grandparents can purchase an IUL for their grandchildren, providing a valuable gift and an efficient wealth transfer strategy.
Example of $200 a Month
First, ensure adequate life insurance coverage for yourself. Then, consider your budget and how much you can save for your child's IUL. A typical starting point is around $200/month. Here is an example of what a IUL can produce in yearly tax-free income at 65 years old (retirement) for your child according to starting age. (Results are for illustration purposes only and not guaranteed.)
- Age 1 equals $135,278 per year
- Age 5 equals $103,131 per year
- Age 10 equals $69,921 per year
- Age 15 equals $46,641 per year