The landscape of American household debt continues to change with cultural shifts and the economic moment. As of last year, those changes featured a large gain in auto loans with the highest levels being reported in auto loan debt in 19 years—evidence of an improving economy and possibly decreased gas prices. Additionally, while mortgage debt declined, credit card and student loans continued a decade of rapid increases with a climb to approximately $1.44 trillion in student loans, while credit card debts grew to $26 – $870 billion (consistent with seasonal patterns)*.
Throughout the lifetime of the average consumer there are periods in which taking on these various forms of debt is appropriate and necessary: cars break down, family changes require bigger or smaller homes, and students go off to college. However, debt taken on from external organizations like banks or credit card companies comes with a price and, too often, with unfavorable interest rates and loan periods.
However, along with various other advantages, Indexed Universal Life Insurance policies (IULs) may provide a new option for those looking to finance major expenditures without relying on an external source.
While IULs provide a tax-free death benefit, they also have a powerful investment aspect. A portion of each premium paid to the policy is placed into an account that collects interest based on an index’s market performance. While not directly invested, the value in the policy nevertheless has a chance to grow based on a percent of the growth of the general market. Additionally, if the market declines (as it did in the late 2000s) the policy maintains its value instead of contracting— providing a great long-term financial resource.
Death Benefits and Policy Balance
Maintaining premiums on the policy allows the policy’s beneficiaries to receive both the death benefit and any value on the policy once the policy holder dies. These payments are generally tax-free.
A Resource for Self-Financing
While IULs are designed to, first and foremost, provide the security of permanent life insurance coupled with growth, the accumulation portion of the policy can provide valuable options for those who need cash in order to purchase a vehicle, fund home repairs, pull income for retirement, or pay for expensive college tuition. Policy holders simply borrow from the insurance company, using the cash portion of the policy as collateral. As a result, there are no applications, income checks, or credit checks involved, and up to 95% of the cash value of the policy may be accessible depending on the carrier you use.
Borrowing against a life insurance policy is a serious financial decision that should be carefully considered, weighing both the benefits against the potential for policy lapse resulting in loss of the underlying investment and the policy death benefit.
For more information IULs as well as the full suite of products and services Simplicity Life has to offer, please contact our dedicated sales team at 800.921.3100.
*Americans are way more in debt now than they were after the financial crisis, Housing Wire