IUL for Estate Planning

Indexed Universal Life Insurance (IUL) can help lower the total estate planning contributions to an insurance trust through duplifunding. 

Life insurance for estate planning has long been the preferred means of providing liquidity at death that is outside of one's estate. This liquidity can help pay estate taxes, without incurring a lot of current gift taxes or substantially reducing one's federal estate tax exemption. Such policies are owned by a trust, which makes the necessary premium payments. This is likely to be an irrevocable grantor trust, such as an irrevocable life insurance trust (ILIT) or dynasty trust.

The types of life insurance placed in these estate liquidity trusts may be whole life, limited pay life, or various types of universal life, including traditional UL, variable universal life (VUL), guaranteed universal life (GUL), and of course indexed universal life (IUL). Term life insurance won't work, as it eventually expires, or the future renewal premiums grow to be enormous.

What sets IUL apart is its inherent prospect of using leverage after as few as three policy years to self-fund through duplifunding. When successful, this type of leverage can make the long-term outlay a small fraction of what may be required for other types of policies. In addition, through the use of the increasing death benefit option, many of these IUL products may pay a larger net death benefit over time (net of policy loans) than the amount they would pay at the outset.

Care needs to be given to make sure the policy remains sufficiently funded, and is not in danger of lapsing due to ongoing policy expenses and loan interest (which is usually allowed to accrue and be added to the loan balance).  We recommend modeling policy performance with the help of our affiliated company, Plan Trackers, Inc.

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