64 • MARTIN H. RUBY
4. To leave as a legacy for your heirs Let’s take a look at how IUL performs when it comes to each of these scenarios.
Getting Your Money First, let’s talk income, the primary reason you’ve been saving for retirement all of these years. IUL policies have a cash value, which is the account value of the policy. Remember last chapter, when we discussed indexing? The cash value is the funds that grow through indexing. The cash value works similarly to other savings instruments you may be familiar with: When you pay premiums, the money goes into the cash value of the IUL policy. Then, expenses are deducted, and interest (through indexing) is applied. In retirement, you can access funds from your account value as income. This is where an IUL policy varies a little from your 401(k) or IRA. In an IRA, you withdraw $50,000 and get a check for $50,000 (which, less taxes, is your retirement income). Your IRA balance is lower by $50,000. In an IUL policy, you borrow $50,000 through a policy loan. You still get a check for $50,000 (and those funds are tax-free, so you can spend all $50,000). But really what you are doing is borrowing against your death benefit. When I say “loan,” your first thought is probably, “Why would I want retirement income I have to pay back?” But that’s not really how it works. Let’s say you have a one million dollar death benefit, and over your lifetime your “loan” grows to $800,000. When you die, the one million dollars first goes to pay off the $800,000 loan. The remaining $200,000 then goes to your heirs, tax-free, as a legacy.
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