IUL policies offer tax-deferred growth on the cash value component. This means that the money you invest in the policy grows without being subject to taxes until you withdraw it. This can be a significant advantage for legacy planning, as it allows the policy to grow more efficiently over time.

The cash value of an IUL policy is tied to a stock market index, such as the S&P 500. This allows for potential growth based on market performance, while also providing downside protection through a guaranteed floor rate (typically between 0% and 1%). This means your cash value can grow without the risk of losing principal due to market declines.

IUL policies offer flexibility in premium payments and withdrawals. You can adjust your contributions based on your financial situation, and you can take tax-free loans from the policy’s cash value during your lifetime. These loans do not require repayment and are deducted from the death benefit, allowing you to access funds without tax penalties.

IUL policies can be used as a wealth transfer tool. The death benefit is passed to heirs tax-free, which can help preserve your estate for future generations. Additionally, the cash value can be used to pay estate taxes, ensuring that your beneficiaries receive the full benefit of your legacy.

The tax-free loans from the cash value of an IUL policy can supplement other retirement income sources, such as Social Security and retirement accounts. This can help provide a stable and secure income stream during retirement, allowing you to leave a larger inheritance to your heirs.

Withdrawals from the cash value of an IUL policy do not increase taxable income, which can help you avoid higher tax brackets and Medicare surcharges. This can be particularly beneficial for those looking to minimize their tax liability and maximize the amount they leave to their heirs.

While IUL policies offer many benefits, they also come with some drawbacks. Building cash value takes time and requires consistent contributions over the long term. It’s essential to assess whether you can comfortably afford the premiums for the duration of the policy.

Indexed Universal Life Insurance can be a powerful tool for legacy planning. By leveraging tax advantages, market-linked returns, and flexible income strategies, an IUL policy can help ensure that your legacy is preserved and passed on to future generations.