4 Benefits of a Reverse Mortgage

*This post originally appeared on www.michaelmorrow.org.

An increasing number of baby boomers are beginning to retire. Some estimates claim that up to 10,000 individuals retire each day in the United States. If you are close to retiring, you should consider the benefits of reverse mortgages. Keep reading to learn what reverse mortgages are and how they can help improve your retirement.

Reverse Mortgages

A reverse mortgage gives homeowners the opportunity to borrow money on the value of their property. While the mortgage doesn’t have to be repaid until the property is sold or the homeowner dies, homeowners still pay property taxes and insurance. The amount of the loan is never greater than the home’s value—even if the value declines over time.

Spending and Your Portfolio

Many retirees withdraw from their investment portfolios after they retire. However, if you retire when the stock market is down then you have to deal with shrinking investments. Retirees may even find it necessary to sell investments early in order to cover living expenses. A reverse mortgage can help cover your living expenses so that you don’t have to sell your investments at the wrong time. Some reverse mortgages offer a standby line of credit. If the stock market is performing badly, you can use the credit until the market improves.

Delay Social Security Benefits

In general, retirees should try to delay their social security benefits for as long as they can. The earliest age that a person can claim benefits is 62. However, the benefits increase for each year that a retiree waits to collect the funds. The percentage increase depends on your date of birth, and after age 70 the increases stop. A reverse mortgage can help retirees delay their benefits for as long as possible.

Help Pay IRA Conversions

Retirees with traditional IRAs may want to roll over their accounts to Roth IRAs once they retire. A reverse mortgage can be used to pay the taxes associated with this type of conversion. Converting to a Roth IRA is an appealing option to some since it can help save taxes in the long run. However, when you withdraw funds from a traditional IRA, you will owe taxes on the amount you withdraw. This is where the funds from a reverse mortgage can help you out.

Preparing for the Worst

A reverse mortgage can help you deal with unexpected expenses related to health or assisting family members who face a financial hardship. Long-term care can be very expensive, and a reverse mortgage is a great option for covering the expenses.

Qualified Plans

This post originally appeared on www.michaelmorrow.org.

Qualified plans are any kind of employer-sponsored retirement plan or individual retirement plan. The most common employer-sponsored retirement plan is a 401(k). Both 401(k)s and IRAs are wrappers for different kinds of assets. Mutual funds tend to be the most common asset held in qualified plans. This post looks at five elements of qualified plans: liquidity, safety, expenses, rate of return, and tax efficiency.


As long as you remain with your employer, 401(k) plans are usually not liquid. However, in many cases, you can borrow up to $50,000 from your plan. Yet borrowing comes with strict repayment terms. On the other hand, IRAs are completely liquid. When you withdraw money, though, you will be taxed immediately, and if you’re under 59 ½ years old you’ll have to pay a 10% penalty.


The safety of qualified plans is not very high. With 401(k) plans, you don’t have unlimited access to any asset you want. The plan administrator decides which assets will be available to employees. IRA plans may be safer than 401(k) plans, but it depends on the type of assets that you choose.


In general, 401(k) plans tend to be expensive. The plan administrator decides which funds will be available, and they’re not always the least expensive funds. You also have to pay administrative fees for 401(k) plans. Most people don’t know what the fees are because they’re typically hidden in the fine print. The expenses for IRAs tend to be lower—there aren’t any administrative fees if the plan is self-directed. However, the expenses of the assets themselves will still be present.

Rate of Return

The rate of return for 401(k) plans depends on the underlying assets that your employer makes available. Yet, since many employers provide employee matching the rate of return can be high. Employers who offer employee matching will usually match 2-6% of your funds. The average tends to be around 3%. There is no employee matching with an IRA plan, so the rate of return depends on the underlying assets in the account. Therefore, the rate can vary wildly from plan to plan.

Tax Efficiency

The tax efficiency depends on whether you have a Roth 401(k) or IRA or you have a regular 401(k) or IRA. When you withdraw money from regular plans, you pay ordinary income taxes. When you withdraw money from a Roth plan, though, you don’t have to pay taxes. With both plans, your money will grow tax-free. Many people find Roth plans attractive since they expect taxes to increase in the future. However, if you earn more than $200,000 you’re ineligible to participate in a Roth IRA. IUL plans are a popular alternative for investors who make more than $200,000.

Mutual Funds

*This post originally appeared on www.michaelmorrow.org.

Mutual funds are a popular asset that many investors hold. Investopedia defines a mutual fund as “an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets” (Investopedia). This post will take a close look at mutual funds and examine their liquidity, safety, expenses, rate of return, and tax efficiency.


When it comes to liquidity, mutual funds usually get a good rating. If you want to access the money in the fund, you can do so without any penalties or extra taxes. However, the degree of liquidity depends on the type of funds you own. There are three different classes of mutual funds, and each class has different fees associated with it. To learn more about each class, have a look at this article.


If mutual funds received a rating for safety, the rating would not be very high. The success and failure of mutual funds depend on the performance of the market. When the market is up, so is the mutual fund. But when the market is down, so is the mutual fund. If safety is your biggest concern when it comes to your assets, then you should seriously consider how comfortable you are facing the risks of the market.


With mutual funds, there are two fees that immediately stand out: the fund management fee, or administrative fee, and the fee associated with using a financial advisor. Management fees can vary from low to high. However, Morningstar reports that the average management fee for a mutual fund is 1.25%. A 1.25% management fee is actually similar to the management fees of other assets out there. Many people need the assistance of a financial advisor to help them manage the fund, and that adds another 1 or 2 percent to the expenses.

Rate Of Return

Since mutual funds are tied to the market, their rate of return can vary significantly. Mutual funds have the potential to grow over time, but, as I detailed in a previous post on stocks, many investors fall prey to their emotions. They either get worried and sell too soon or chase top rated mutual funds with the hope of making more money.

DALBAR is an organization that analyzes the behavior of investors. Each year the organization releases a report that details the performance of the market in relation to individual investors.  Over the last 30 years, the S&P has averaged 10.35%, but the typical investor has only averaged 3.66%. And while the bond market has averaged 6.73%, the typical bond investor has only averaged 0.59%. People actually tend to do worse with bond funds than with stocks.

Tax Efficiency

Since you’re taxed when the fund manager sells individual assets, you can end up paying a lot of taxes on a mutual fund. Each year you’ll receive a 1099 form for the fund. If any assets were sold in less than a year, they’ll be considered ordinary income, and you’ll have to pay the expensive taxes associated with that. On the other hand, assets held for more than a year will be taxed as capital gains. If you use a mutual fund manager like the majority of people, you have no control over when the manager buys or sells assets. One strategy to avoid excessive taxes is to invest in an index fund that has low turnover rates rather than an actively managed fund.

Why in the world would a billionaire have a $6M mortgage?

Bloomberg recently published an article entitled “Zuckerberg’s Loan Gives New Meaning to the 1%” which is about Mark Zuckerberg (the founder of Facebook who is a multibillionaire) putting a $5.95 million mortgage on his home.  Many people may ask, “Why in the world would he do that?”.  The article does a great job of giving us “99%” the reasons why.  Here are some tidbits from the article:

  • His loan is a 30-year adjustable-rate loan starting at 1.05%
  • When you can borrow at a rate below inflation, you’re borrowing for free
  • Use other people’s money to preserve financial flexibility
  • He purchased the home using an LLC for asset protection
  • Wells Fargo Private Bank says, “In our experience the majority of high-net-worth individuals do have a mortgage”
  • Zuckerberg refinanced his 1.05% loan from a current 1.75% loan with Morgan Stanley
  • His mortgage was signed by a tax consulting firm for high-net-worth individuals
  • Wealthy individuals use mortgages since they are “low cost” and provide additional access to liquidity
  • Wealthy individuals invest excess cash that would have gone into their home into higher-yielding assets
  • Even if rich people are able to pay off their mortgage, they don’t want to “tie up their holdings” in real estate equity when there are “more attractive investments”

There is an old saying that goes something like this:  If you want to be successful, study the successful and do what they do, while at the same time, study the masses and do the exact opposite.  Since the rich have maximum mortgages and the masses are almost always trying to pay off their mortgage, what should you do?

I would recommend that you consider managing your real estate equity in “more attractive assets” that help optimize the liquidity, safety, and rate of return of your assets.  Let me know if you would like to know some of the “more attractive assets” my clients have successfully used in growing and protecting their wealth.

Michael Morrow, Financial Planner

Here is a link to the original article:  http://www.bloomberg.com/news/2012-07-16/zuckerberg-s-loan-gives-new-meaning-to-the-1-mortgages.html?cmpid=otbrn.tech.story

As Obama Heads To Term Two, What Are Investors To Do?

November 7, 2012

By Jerry Bowyer

It’s 4:30 in the morning, and I’m awake and I’m thinking about my country. Praying even.  Out of bed;  go downstairs; confirm what I suspected when I went to bed at 9 last night, that Obama and indeed won reelection; check the day’s schedule.

The main item today is a mid-afternoon conference call with an investment committee on which I sit.

What do I say to my fellow committee members? 5,000 families have entrusted their savings to us, the accumulated results of their lifetime of labors, and they have put almost 7 billion dollars of it into our care. They’ve trusted us to help them preserve and grow it a little so they can retire, volunteer for charity, give to the poor, and help their children and grandchildren to get a start in life.

What I would tell them is this: You are used to thinking of America as a place that honors you and what you do, which thinks of entrepreneurship and investing as a noble thing. For this reason, the major investment decisions in the past have been whether you should invest in American stocks or American bonds. The former were a little bit riskier than the latter, but if you could stand it, the best thing is to put as much of your hard-earned cash into good, solid American companies and leave it there for a long time and not give it a second thought. If you were an entrepreneur, your main question was how quickly to expand your business and that almost always meant how quickly to expand in the U.S.

But all of that has changed. Half of this country no longer honors wealth creation, and that half of the country is in charge. For whatever reason: economic illiteracy, class envy, a progressive education which values feelings over logic, thousands upon thousands of movies and TV episodes portraying business as evil, family breakdown which leaves many people seeking the nation as a substitute family and the president as a substitute father, and an increasingly post-Biblical society which looks for an earthly rather than a heavenly king as the source for security and provision in the world. Pick your poison. Maybe it’s a toxic brew of all of those factors. But for whatever reasons, our nation has left behind the iron laws of human nature upon which was built the greatest engine of prosperity this poor, shivering, starving human race has ever seen.

I don’t know if it is permanent. I think that it probably is not. But it is here now, and you’ve got to adapt to it.

The state is now the principle driver of investment value. Risk levels are high and rising. The U.S. is, according to the Economic Freedom of the World index, the nation with the 18th freest economy in the world. The less-detailed Index of Economic Freedom gives us a more generous ranking of 12th. Both of those reports were before yesterday’s reelection results. We will almost certainly drop. My main research task today is to estimate how much we are likely to drop as a nation in our freedom score. This will be an unenjoyable task.  Despite the fact that we are in the midst of a sharp left turn U.S. stocks and bonds are currently at valuations consistent with times in our history when our culture and policies were much friendlier to economic growth and prosperity. This is troubling.

The great economist Jean Baptiste Say said that ‘An entrepreneur is someone who shifts resources from a situation of low yield to a situation of high yield.’ By ‘entrepreneur’ Say meant not only the type of business owner/operator that we now associate with this word, but also what we currently call ‘investors’. Say was unusual in that he was an economist, but also a successful practicing entrepreneur. He had not only mastered the writings of Adam Smith, but had also practiced the art of the creation of the wealth of nations. He went on to become a great popularizer of free-market economics and was read widely by some of our founders. Jefferson, in particular, was influenced by Say.

What Say is best known for is Say’s Law, which is the idea that saved money is not wasted money, but that it plays an essential role in the economy. Anticipating Keynes’s error that thrift is bad for the economy: Say proved that when we make the decision to save instead of to spend; that these savings are still recirculated into the economy, but in the form of capital investment rather than consumption. This capital investment is the source of economic progress.

Our leaders, however, have rejected the classical model of Say on which this country was built and hungrily accepted the errors of Keynes: investors are harmful hoarders; we should tax away their savings and spend it in government budgets, and we should punish what remains of their savings through freakishly low interest rates and the resulting inflation.

What would Say say about all of this? I think he would advise us to shift our resources from zones of overly low yield to zones of high yield. You see, although many Americans, and more so, our opinion molding institutions have become bored with freedom, much of the world is falling in love with it for the first time. Former Soviet-dominated states in Eastern Europe, Some European states learning the painful lessons of the collapse of the welfare state, South American nations which are breaking away from left and right wing populism, parts of the long-suffering continent of Africa, Asian city states with low margins for error, swaths of the world are embracing as precious what we throw off as threadbare: economic liberty.

Resist the temptation to think of shifting money from low freedom environments to high freedom environments as unpatriotic. It is not. Patriotism does not require one to make unwise loans to unreliable debtors, even if that unreliable debtor is the U.S. government. U.S. treasuries are no longer liberty bonds, with the proceeds to go towards defeating the Nazis. They now fund a dependency society at home and abroad and crony capitalism in the corporate sector.

Resist also the temptation to act from bitterness. This is not a boycott or anAtlas Shrugged situation in which we punish the nation for not respecting freedom. The goal is not to punish anybody. The goal is not to shrug, but to shift, to shift resources to places where they will do the most good for both our portfolios and for the economy in general, and those places are places where the State is not honored as a god, but treated as servant and a guardian of our life or liberty and our property.

I believe there will be a time again when the United States will be the best place on planet earth to invest our wealth, but that time is not now.

For now, we invest most where our capital is most wanted, give alms to the growing number of people who will need them, and in the meantime we patiently explain to our fellow citizens once again why the economic stagnation they face is the inevitable result of bad policy, and what we would have to do to get America back to growth.


Mr. Bowyer is the author of “The Free Market Capitalists Survival Guide,” published by HarperCollins, and a columnist for Forbes.com.

Here is a link to the original article:


Guaranteed Indexed Accounts (GIAs): The Best of Both Worlds

Guaranteed Indexed Accounts (GIAs) are a missing asset class for many investors.  They provide the best of both worlds–significant return potential with absolute protection from downside market risks.

I was recently interviewed on Accelerated Wealth Radio about the different kinds of GIAs that are available to investors and why they may be superior to many other asset classes.

Bon Appetit!

Guaranteed Indexed Accounts – Radio Show Segment 1

Guaranteed Indexed Accounts – Radio Show Segment 2

LiSERT Analysis: Indexed Universal Life (IUL) Insurance

What is indexed universal life insurance?

  • IUL is also known as equity indexed universal life (EIUL)
  • IUL is a type of permanent life insurance policy (i.e. not term insurance) that provides both a death benefit to named beneficiaries and living benefits to the policy owner in the form of policy (or cash) values
  • What is unique to IUL is the growth of the policy values is linked to the positive performance of one or more securities or market indexes, like the S&P 500 Index, while NOT exposing the policy values to the downside risks of the markets
    • Whereas variable universal life (VUL), which also has policy values linked to securities, has both unlimited downside and upside exposure to the linked markets, IUL provides downside protection from market risks (in the form of a guaranteed minimum annual return) in exchange for a capped upside of any positive annual market returns
    • IUL policies combine the long-term growth potential of equity or other markets with the security of a traditional life insurance contract

Many people who “drink Wall Street Kool-Aid” are surprised that life-insurance-company-based products are a significant part of the net worth of some of the savviest and wealthiest institutions and individuals in the world:

  • According to a New York Times (Charles Duhigg) article published in 2006, “Hedge funds, financial institutions like Credit Suisse and Deutsche Bank, and investors like Warren E. Buffett are spending billions to buy life insurance policies” on the secondary market
  • According to government disclosures, Federal Reserve Chairman, Ben Bernanke, has the majority of his liquid net worth on deposit with life insurance companies (not deposited in banks or invested on Wall Street) – Medical Economics 6/19/2009
  • The nation’s large banks invest immense sums of their Tier 1 capital reserves (a bank’s most important asset and a key measure of its strength) into permanent life insurance underwritten by major life insurance companies – Medical Economics 6/19/2009
    • As of the date of the article, Bank of America, JP Morgan, Wells Fargo, US Bancorp and Bank of New York Mellon had more of their Tier 1 capital reserves in permanent life insurance than they did in bank premises fixed assets and real estate COMBINED
    • During the economic downturn of 2008-2009, Wells Fargo almost tripled its holdings in permanent life insurance

 So a good question might be: Why do they do that?

Well, after a brief analysis of the five key elements of any prudent asset, the answer should be clear.  These five elements are:

  1. Liquidity
  2. Safety
  3. Expense
  4. Return Potential
  5. Tax Efficiency

Since no one asset is the best in each of these areas, it is important to know the pros and cons of each asset using these five elements as a guide.

The following bullet points are only meant to highlight some of the pros and cons and are not a comprehensive discussion.  In addition, any reference to specific financial products is not a recommendation to buy or sell these products.


  • Though IUL is designed to be held long term (at least 10 years), it offers significant liquidity
    • Of all other long-term, tax-favored assets (i.e. IRAs, 401(k) plans, annuities) it provides the most liquidity without a tax penalty
    • IUL is the only long-term, tax-favored asset used as collateral for a bank loan
      • Using an annuity or retirement plan as loan collateral, even if allowed by the bank, will trigger a taxable event
      • Due to IUL liquidity, banks will even lend money for the purpose of purchasing IUL, using the policy values as primary collateral
    • It is not uncommon to have access to 100% of your principle within a few years
      • Some IUL policies have a provision for 100% liquidity from the beginning of the policy
    • IUL liquidity provisions include either withdrawals from the policy values or loans from the insurance company using the policy values as collateral
    • According to a Medical Economics article on 6/19/2009:
      • John McCain used the liquidity of his large life insurance policy to initially finance his campaign
      • Doris Christopher used the liquidity of her life insurance policy to launch Pampered Chef—that she eventually sold to Warren Buffet for $900 million
      • J.C. Penney used the liquidity of his large life insurance policy to begin resuscitating his retail stores after the crash of 1929


  • An IUL policy that is properly structured and funded with a highly-rated insurance company should be one of the safest assets to hold in a portfolio
    • IUL is sold by some of the largest and highest-rated insurance companies in the world
      • Unlike banks, life insurance companies do not use excessive leverage
      • If a bank has $1 million on deposit, it can lend out up to $10 million
        • This “excessive” leverage is a reason many banks are failing
      • If a life insurance company has $1 million on deposit, it can lend out no more than $920,000, meaning life insurance companies are 100% reserve-based lenders, making them stable institutions in down economies
      • According to the Medical Economics article, during the Great Depression, when more than 10,000 banks failed, 99.9% of consumers’ savings in life insurance remained safe with legal reserve life insurance companies
    • IUL, since it is a life insurance CONTRACT, contractually guarantees that though the policies values are linked to various markets, there is a guaranteed minimum return in case of negative markets
      • In addition, all positive interest that is credited to policy values is protected from future market losses
    • In many states, life insurance policy values are protected from creditors (lawsuit, bankruptcy) by state law
    • There are two main risks of losing money in an IUL:
      • Not properly funding the policy
      • This risk can be mitigated with proper structuring (i.e. minimum death benefit per $ of premium) and source funding (i.e. using assets, instead of cash flow, to fund the policy)
      • Cancelling the policy in the early years
      • This risk can be mitigated with proper planning and ongoing policy servicing


  • There are six (6) main expenses associated with IUL:
    • Cost of insurance (also known as mortality charges)
      • Monthly expense to pay for death benefit
    • Premium expense (also known as premium tax)
      • One-time percentage (usually 5%) of each paid premium which is paid by the insurance company to the government
    • Policy expense (also known as monthly expense)
      • Monthly expense to cover insurance company expenses
    • Cap-rate enhancement expense
      • Expense to purchase more market-index upside
    • Loan interest
      • Subtracted from policy values if not paid in cash
    • Surrender charge
      • Possible back-end expense charged if policy is cancelled before a certain year (usually 10-15 years)
      • Many IUL companies offer policy riders that waive the surrender charge
  • From an expense perspective, since IUL is “front-loaded” and typically has a surrender charge, it usually does not make sense to purchase IUL as part of your short-term portfolio (i.e. less than 10 years)
    • Purchasing IUL requires a long-term approach—much like the mindset you take when deciding to purchase a home versus rent a home (i.e. short-term pain for long-term gain)
  • Due to the number of possible expenses of IUL, it has the reputation with some people of being      “expensive”, but in and of itself, IUL is neither expensive nor inexpensive—it depends on the policy structure, funding and utilization
  • A properly funded, structured and utilized IUL can have a relatively low expense ratio compared to many other assets; conversely, due to non-cash-value-correlated expenses of IUL, not funding IUL properly, or cancelling it in the early years, can lead to a high expense ratio
    • To minimize the expense ratio of IUL, you should purchase as little death benefit as possible (see Internal Revenue Code (IRC) §7702) for each premium dollar paid—that way, more money is retained in your policy values
    • The expense ratio of a policy can be projected/calculated using the difference between the illustrated (gross) rate and the internal (net) rate of return (IRR)
    • For example if the gross illustrated rate of the IUL contract is 8% and the net long-term IRR is 7.6% then only .4% is lost to policy costs (or about 5% of the total return)—which compares favorably to mutual funds and other managed portfolios
    • With most mutual funds, the annual expenses that have to be subtracted from the gross return include fund fees, management fees and taxes
    • For example, if you owned Fidelity Magellan Fund (FMAGX), according to Yahoo! Finance, the annual fee paid to the fund is 0.59%
    • The management fee paid to your advisor could be around 1% (less or more depending on how much you invest)
    • Since the fund has a turnover rate of 102%, that means that most of your gains in the fund would be taxed at short-term capital gain rates (i.e. your marginal tax bracket) and have to be paid each year
    • Therefore, if the fund grossed 8% (its current 10-year return is less than 1%), then the net after-tax return would only be 3.82%–which means you would lose 52% of “your” return to the fund, your advisor and the IRS:
      • 0.59% to the fund
      • 1% to your advisor
      • 2.59% to the IRS, assuming a 35% marginal federal tax bracket (not including potential state income tax) and taxed at short-term capital gain tax rate (due to high turnover rate of the fund)
    • Therefore, with the expenses and taxes associated with the Fidelity Magellan Fund, using the assumptions above, the fund would have to average almost 16% per year to net what an IUL would net with an illustrated return of 8% and an IRR of 7.6%
    • So, in this example, would you rather pay 5% of your long-term return to have death benefit throughout the term of the policy (and downside protection from the markets) or would you rather pay over 50% of your return to have no death benefit (and no downside protection from the markets)?
    • Again, the expense of an asset is always relative to what you are comparing it to

Rate of Return Potential

  • IUL policy values are linked to various market indexes that allow your policy values to grow up to maximum annual cap rates
  • Using long-term historical performances of market indexes, most policies will illustrate future policy value growth based on historical averages of 7%-9%, depending on the index and cap rate
  • There are several ways to potentially increase the long-term IRR (net return) of IUL policy values:
  • Purchase IUL from companies that have higher participation caps
    • Some companies have annual cap rates as high as 20% on their index strategies
  • Purchase IUL using premium loans (also known as premium financing)
    • This strategy alone can significantly increase the long-term IRR of IUL
  • Use fixed participating loans when accessing the policy values
    • These are loans where you pay a fixed rate to the insurance company but you still have the upside of the market indexes for your policy values
    • One company offers a fixed participating loan that is contractually guaranteed to be 5.3% for the life of the policy
    • Use fixed participating loans during your “accumulating” years to purchase appreciating assets like real estate and other investments
      • This allows you to have the potential to experience a double positive arbitrage (the difference between what you pay in interest versus what you gain through rate of return)
        • You can earn the difference between the loan rate and the IUL index crediting rate, PLUS…
        • You can earn the difference between the loan rate and the return on the appreciating asset
  • Sell the policy on the secondary market
    • During your retirement, if you decide you no longer want or need your policy, you could sell the death benefit (i.e. contract) for more than the policy value
    • This would obviously be in your best interest but may not be in the best interest of your beneficiaries
    • The secondary life insurance market is what was referenced to earlier that hedge funds, banks and investors like Warren Buffet are involved in
    • When a policy on a senior citizen is sold/purchased on the secondary market, it is known as a “senior life settlement”
    • In the right situation, it can be a win/win for both the seller and buyer since the seller (you) is getting significantly more than the policy values, while the buyer is purchasing your death benefit at a deep discount

Tax Efficiency

  • IUL can be one of the most tax-favored assets under the Internal Revenue Code (see your tax advisor for specifics regarding your situation)
    • A properly structured, properly funded and properly utilized IUL (see IRC §101 and IRC §7702) has similar, but arguably better, tax benefits than Roth IRAs (see IRC §408A and IRC §7701)
      • Premiums are paid with after-tax dollars
      • Policy value growth is tax deferred
      • Policy value profit can be accessed tax free via withdrawals and/or policy loans (that can be paid back via the death benefit at policy maturity)
      • Policy death benefits (usually significantly more than policy values) can be received tax free by beneficiaries
    • The two main advantages of IUL over Roth IRAs are:
      • You can put significantly more money into IUL than a Roth IRA
      • IUL has significantly more early liquidity (i.e. penalty-free withdrawals/loans) than a Roth IRA
    • However, if a policy is “cashed in”, any profit in the policy would be taxable at your federal marginal tax bracket
      • This tax can be mitigated if the policy values are rolled directly to another qualifying permanent life insurance policy (see IRC §1035)
      • This is similar to doing a real estate tax-free exchange (see IRC §1031)
      • This tax-free exchange option is important since there is a high probability that future insurance policies will have more desirable features, and policy owners may want to “upgrade” their contracts without having to pay a “tax toll”

Therefore, since properly structured, properly funded and properly utilized IUL:

  • Is more liquid than most assets…
  • Is one of the safest assets…
  • Is relatively inexpensive…
  • Has historically-based, above-average return potential, and…
  • Is one of the most tax-efficient assets…

IUL is at the top of my list as a foundational part of a long-term portfolio.