What it is:
A IUL is a cash growth vehicle: you use after tax money to pay policy premiums and the policy proceeds are tax-free. A IUL is different from other life insurance policies in the fact that part of your monthly premium is invested in a financial index that may give you a larger return than other policies. Since part of the premiums are invested in an index, many compare IULs with 401(k)s. However, having some of your premium payments invested in an index may be in line with your financial goals. More on that later.
How to Use the Policy to Pay Your Debt:
Here is how the IUL can be used to pay your student loans: most IULs allow you to take early withdrawals (or loans) from the policy tax free. You can then use the proceeds from the withdrawal from your IUL to pay down your student debt. The withdrawals are likely penalty free as well depending on the terms of your policy. According to Jason and the policies he deals with you would never want to withdraw money in the first 5 years. Ideally you would want to wait 10 to 15 years before withdrawing to avoid penalties, but again that depends on your policy. It’s important to note that you do not have to pay back the money you withdraw, it just reduces the payout at death.
The Costs:
According to Jason, premium payments are commonly paid monthly. When it comes to how much you can expect to pay, Jason says, “Whatever decade of age the person is in [her or she] should put in that many hundred of dollars a month.” That means if you are in your 20’s you put in $200 and if you are in your 30’s you put in $300. How much in benefits would you receive? According to Jason, generally speaking if you are in your 20s and in good health and you put in $200 a month you can expect about $130,000 to $200,000 in death benefits. That amount of benefits would be the same if you were in your 30’s and contributed $300 a month. Again, that amount is a generalization. Remember though, by pulling out money early to pay your student loans your death benefits would decrease. If you can find a way to fit the monthly payment into your budget then a IUL may be something you should explore.
If you are looking for a place to get an IUL, Jason doesn’t just recommend his company. He also says, “If your family has someone then start there. The advantage to [dealing with someone you know] is it beats the stigma of dealing with a life insurance agent.” There are some requirements, both health wise and financially, to qualify for a policy.
Jason wants to remind people that you can use a IUL to help pay for something other than your student loans. You never know what can happen in life and having access to some emergency cash is always a benefit. However, as with any financial decision, I recommend you seek professional advice. This article only highlights some general points of a IUL and should not be construed as a recommendation.
