Indexed Universal Life Insurance with Premium Financing For Dummies

It took me a couple of times to understand how to wrap my head around IULs and their benefits. This concept of “Bank on Yourself” or “Infinite Banking” makes it more complex than necessary.

If you’ve heard of these concepts before, the TLDR; is that taking a type of whole life insurance policy called “indexed universal life” allows HNWI (High Net Worth Individuals) to create a retirement vehicle comparable to a Roth IRA without the same income limitations by taking advantage of stock index-based growth and loans as a tax-free withdrawal mechanism.

Why take out a loan instead of withdrawing the money directly?

Loans are not subject to income tax. Realized gains that are withdrawn are subject to capital gains tax.

Why not invest in a traditional retirement plan?

You probably are better off fully contributing to retirement plans first until you reach the maximum contributions. IULs are worth exploring after that.

Why not invest the same capital into an index fund?

Two arguments that I’m aware of for advantages of IUL over index funds is that there are taxable elements of index and mutual funds not held in a retirement account and that IUL’s typically have a floor that cap the downside to zero losses (although this generally includes provisions that cap the upside).

Here’s a more in-depth article regarding the benefits of IUL policies.