IUL Tax Advantages For Small Business Owners
While indexed universal life insurance can help to solve many personal and family financial needs, this type of policy may also be well suited for those who are business owners. Business owners can face many financial related challenges – and an IUL policy could be the ideal solution. These policies can provide one or all of the following benefits for you if you are a business owner:
Tax Free investments and other benefits for Business Owners
Tax-Deferred Growth of Cash Value
Because an IUL policy allows the tax-deferred growth of cash value, your funds can grow and compound exponentially over time.
No Market Risk
Due to IUL policy cash values having a “floor,” there is no downside risk to your principal in these plans – even if the underlying index that is being tracked suffers a substantial loss or experiences a high rate of volatility. This means that you can count on having your principal protected for the short- and the long-term.
No Maximum Annual Contribution Limits
Although you may invest in a qualified retirement plan through your business, these savings vehicles will typically have annual maximum contribution limits. Unfortunately, this can hold you back from accumulating additional funds you may want or need in the future. An IUL policy, however, is not subject to these contribution limits, which means that you can continue funding your IUL policy, even if you have already “maxed out” your other retirement savings options.
Tax-free Retirement Income Supplement
Even though traditional retirement plans and IRAs allow the tax-deferral of growth, these plans are essentially just postponing your ultimate tax liability. Indexed universal life insurance policies, however, allow you the ability to access your cash value tax-free for supplementing your retirement income – which means that you can have full access to the money you obtain.
Tax-Free Funds for Business Purchases
You can also borrow your IUL cash value for purchasing items and/or equipment for your business. Doing so may be able to help you secure more favorable access to money vs. High-Interest forms of borrowing to obtain the things your company needs, as well as for expanding your business over time.
Continuation of the Business
In many cases, the death of a business owner or key company executive could signify the end of the business altogether if there is not some succession plan in place. An IUL policy could be an ideal vehicle for funding a business buy-sell agreement. With a buy-sell agreement, remaining partners or key individuals can use the funds from the IUL policy to purchase the insured’s portion of the company – essentially keeping the business running in the interim. Depending on your business, there are several different ways in which a buy-sell agreement can be set up.
An IUL policy can also be considered “self-completing.” This means that, even if the unexpected should occur, you can be certain that those who are counting on you will still be protected financially. For example, the policy’s proceeds could be paid out to your family, allowing them a way to replace the income they may be losing due to your passing. The policy’s funds could also be paid out to family members, allowing them to purchase your share of the business, and in turn, to keep the company running in the future.
If you’re a business owner and you are considering using an IUL policy in your overall financial planning strategy, it is important that you work with an licensed professional who is familiar with this type of insurance vehicle, as well as with how an IUL policy can work to meet your specific planning needs.