May 28, 2021
How Does IUL Works for Long-Term Care? IUL Policy Explained
When we’re talking about IUL, kind of think of it as a pie. And depending on how we structure it, it can provide different benefits, depending on what your goals are. Typically you can split it up into different things. One is Tax-Free Income. Another is Legacy Plan(death benefit) and another is Long-Term Care Benefit. Typically what happens is that death benefit can double as a Long-term care benefit depending on how you structure the policy.
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Can you explain IUL for long-term care? How does that work?
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When we’re setting up an IUL policy, and again, I don’t like to get too much into specific tools because I don’t want it to come off as like I’m trying to sell you on something. But that said, this is a complicated tool. So when we’re talking about IUL, kind of think of it as a pie. And depending on how we structure it, can provide different benefits depending on what your goals are. But typically when we’re looking at this pie, it can be split up into different things.
So one would be income, so tax-free income. So if you want tax-free income in retirement, we can structure the IUL so it can provide tax-free income. Also, it could be set up as a legacy play. If you look at your investments and everything you’ve accumulated and say, hey, you know what, there’s going to be some portion that I’m not just going to need during my retirement and I want to leave more money to my kids or grandkids. Then just kind of thinking big picture, every dollar you put into this could be $2 of tax-free death benefit to the kids or beneficiaries. Where we get the leverage of life insurance. So yeah, we could do Roth conversions and now you have a $100,000 Roth going to the kids, which are tax-free. But depending on your age and health, and again, this isn’t just for young kids, I have clients who are 65, 70 and older doing this. If we can leave and set a $100,000 or a $1,000,000 to the kids inside of a Roth, but instead, now it could be 2,000,000 tax-free that could also be estate tax-free we’re creating some leverage there. So it could be a legacy plan.
Long Term Care Benefits
Or we could also add in long-term care benefits. And so typically what happens is that long-term care benefit or death benefit could double as a long-term care benefit. So if let’s say we have a $1,000,000 worth of death benefit, depending on how we structure this policy, that $1,000,000 could go to the death benefit or the long-term care benefit. Where let’s say we needed a $500,000 of long-term care benefits during our life. That means I’ll have this$1,000,000 pie now there’s going to be a death benefit going to the kids of whatever’s left over to that. So it’s a way that we can leverage for not only long-term care, but also death. And so what we do when we’re utilizing IUL, if that’s going to fit into the strategy, is we prioritize what’s most important. Is the most important thing tax-free income? Then we’re going to structure the policy different and maybe we don’t add on that long-term care benefit. And it’s more geared towards having this tax-free income benefit. Or I was sitting with some clients yesterday, they were fine in terms of income. So really we structured their entire policy more for a death benefit, so that we’re maximizing the death benefit. So there’s different ways we can structure it based on what your goals are. So that’s the short explanation of IUL.