A strategy involving maximizing premium payments into an indexed universal life (IUL) insurance policy to leverage its potential cash value growth is often referred to as “max funding.” This approach typically involves contributing premiums significantly beyond the amount required to maintain the policy’s death benefit. For example, if the required premium is $5,000 annually, someone pursuing this strategy might contribute $20,000 or more, depending on the policy’s design and their individual financial goals. The excess premium contributes to the policy’s cash value, which has the potential to grow based on the performance of a chosen market index, while remaining protected from market downturns. It’s important to note that policy loans and withdrawals reduce the death benefit and cash value, and may be subject to taxation and fees.
This approach can be attractive to individuals seeking to accumulate tax-advantaged cash value. The potential for tax-deferred growth and tax-free withdrawals (through loans) may provide advantages for retirement planning or other long-term financial goals. Historically, life insurance has played a role in wealth accumulation strategies due to its favorable tax treatment. The flexibility offered by IUL policies, combined with potential market-linked growth, has made this a popular choice for those looking to maximize cash value accumulation. However, it’s crucial to recognize the inherent complexities of IUL policies and the importance of carefully considering personal financial circumstances and risk tolerance.
