5 Reasons to Purchase an Indexed Universal Life Insurance Policy

As a financial planner, I feel like Indexed Universal Life insurance is one of the most misunderstood and underutilized tools and asset classes in the market today. I believe that this is because of the newness of the product itself. Indexed Universal Life(IUL from here on out) has only been around for a little over 15 years. Because of this, most financial advisors don’t fully understand it. IUL’s came around after they received their education and set their practices. Thus, individuals aren’t learning from experts, but rather, they rely on media pundits for any information on these programs. In an effort to further educate you, and promote a wonderful product, I give 5 reasons to buy an IUL.

The first great reason to have an IUL in your retirement portfolio is the fact that these products provide minimum guarantees. Unlike placing your funds directly into the market, these funds are protected from the market. They earn interest in a unique way. Interest is credited based on the performance of a chosen index. Rather than being invested in the actual market, you merely receive a portion of the index return. Again, the worst-case scenario is that you earn 0% in a given year. You can never lose money due to market fluctuations. Each year that you do earn interest, that interest is locked in and becomes part of the principal amount guaranteed to not be at risk to the market. What a great way to plan for retirement. This system of guarantees also removes the risk of retiring at the wrong time, when your account value is low due to market losses. It also prevents catastrophic damage to your retirement due to losses in the early years of your retirement.

In addition to the downside protection, these products can perform very well; often times outperforming the market returns seen in a typical investment portfolio. So you don’t have to give up a good return to find a safe haven for your retirement nest egg.

The second great reason for purchasing an IUL is the tax-free death benefit.

Life insurance is often used as a tool in estate planning. It is treated favorably by the IRS tax codes. Often, the funds coming from a death benefit from a life insurance policy are passed on to beneficiaries income tax free. Indexed Universal Life is no different. It becomes a wonderful tool to pass on assets tax free. Unlike other retirement options, such as a 401k, the assets held in an IUL pass on without taxes and give you immediate access to the funds, unlike assets held in real estate. It is also very typical, due to the death benefit common in all life insurance policies, that the death benefit will exceed the accumulation value of the account, meaning you not only leave more to your beneficiaries by paying less in taxes, but also because of the higher death benefit.

The third great reason for looking at an IUL is for the incredible supplemental retirement income that can be generated from it. What if you could put an unlimited amount of money into a Roth IRA, pay taxes on the principal now and have an income generated, tax free, for your retirement, and you could even access it early if you wanted? That would be an incredible deal, right? Well, it exists. It’s called an IUL. You can create a tax-free income through these IUL’s without having to worry about the timing of the market. Rather than rolling the dice of where the tax brackets fall out over your lifetime, why not draw at least part of your income through a program that allows you to fund it limitlessly, and not have to worry about paying taxes on the gains?

This is achieved through policy loans. It’s a new concept, but hear me out. Through a policy loan, you are able to draw out an income from your IUL tax free. Everyone always asks me “what if tax laws change?” Valid question. In theory, it is possible that the laws change and these funds do become taxable, but that would be odd. The government doesn’t tax our loans, only the asset by which the loan is guaranteed. Think for example of your car loan… you pay a property tax on that auto, but you don’t have to treat the loan from the bank that you used as income because it wasn’t income, you have to pay it back. These policy loans function the same way.

Diversification is the fourth reason to purchase an IUL. Since the bulk of your retirement funds are probably in taxed deferred savings accounts, like traditional IRA’s and 401k’s, IUL’s can provide a diversification, not only in asset class, but also in the tax treatment of the account. We typically believe in diversification and have been taught that since our high school years, yet we all have our retirement in the same types of vehicles. All are tax-deferred time bombs with minimum distribution ages and minimum distribution requirements or maximum contribution amounts controlled by the government and current economics in the USA. We are all typically in a blend of stocks and bonds, crossing our fingers that when that day comes to retire, we are up, not down. Hopefully we’ve picked well, though we be uneducated as can be, and yet we bank on this as our retirement program and a whole industry has built itself around it. Amazing that we’ve heard this same concept preached for over 2 decades and we’re still drinking the kool-aide. I’m not going to tell you to not drink, just try a different flavor for a minute. It should be noted that when taxes go up, and they inevitably will, you will pay taxes on those funds that are in taxed deferred accounts. This can hurt the value of the dollars you have saved in those accounts. There is also a little thing called an RMD. Required Minimum Distributions are what the federal government requires us to withdraw from our retirement accounts, based on our age, as a percentage of our account balance. There is always the possibility of these percentages increasing so the taxes can be collected on these funds. This could also cause you to withdraw funds you don’t need. An IUL gives you a great hedge against these potential tax issues.

Finally, the fifth reason to purchase an IUL is because they allow you to work towards becoming your own banker. Have you ever found it odd that you borrow money from a bank even though you have money in the bank? I have. Most IUL’s have loan provisions allowing you to borrow from and pay back your life insurance. The nice thing is, by doing this, you pay yourself the interest rather than the bank. You continue to have a retirement fund that is growing and you aren’t losing years’ worth of interest to the bank. Think of all the interest you have paid for credit cards, auto loans, your mortgage, etc. You can borrow yourself the money instead and you don’t have to worry about the approval process at the bank. Many business owners feel that term insurance is the only type of life insurance for them because they don’t want to tie up their money. This is a false assumption. The funds “tied up” in life insurance are not locked up, but rather, provide more access to funds than most investment opportunities. The funds can be borrowed and replaced with relative ease, making it a wonderful program for creating your own personal banking system.

One final little bonus is that your IUL is permanent insurance, as long as it is built correctly and you fund it properly. You’ll likely have lifetime coverage, even after stopping your premium payments and taking withdrawals. Long after your term insurance is gone, you’ll still have a death benefit to leave those you love.

For these reasons, along with many others, indexed universal life insurance is a great way to help fund your retirement. It is not perfect for all situations, and it is always wise to consult your advisor before purchasing any retirement funding program. That being said, there are five reasons you should give your advisor a call and find out if an IUL is right for you.

Get Search Engines – Index Your Website

If you want free search engine traffic from the search engines then the first step is to get your website indexed by the search engines. As long as your site is not indexed by Google, Yahoo and MSN, these search engines won’t even know that your site exists.

You will find many SEO Services on the internet that claim to getting your site indexed by hundreds of search engines on payment of $50-$100. Most of these SEO Services are just taking the webmaster for a ride; avoid them. Many SEO services online will charge you something like $50-$100 for getting your site indexed by hundreds of search engines. The truth is most of these services are not good. Don’t waste your money. You can get your site indexed for free by the three important search engines.

In my opinion, there are only three search engines on the internet; Google, Yahoo and MSN. The other so called search engines have so little traffic that you can ignore them. Focus on Google, Yahoo and MSN. Google is the most important search engine. In fact, it is the search engine. If your website is not indexed by Google than forget about getting search engine traffic. Google gets more than 60% of the search engine traffic and its share of the global internet searches is on the rise. Ignore it at your peril!

Yahoo gets around 30% of the search traffic online. This is the second largest search engine. Getting indexed on Yahoo is also important for you. Yahoo can give you a lot of traffic for free.

MSN is the youngest search engine among the top three and is also called the Baby Search Engine. MSN share of the search engine traffic is less than 10%. Somehow MSN could not compete with Google and Yahoo in the online world and has been left behind. Most of the people who go on MSN, are not internet savvy, so you should expect very good conversions on it. Studies show that MSN converts 3 times better as compared to Google.

For getting your site indexed on Google. Open a Google Webmaster Tools account. Submit your site as well as its sitemap. Wait for a few days. Googlebot will come and crawl your site and get is indexed. It is as simple as that. People try to portray as if getting indexed by Google is difficult. But with Google Webmasters Tools, rest assured, Googlebot will index your site in a week.

Yahoo has its own Yahoo Explorer service. Open an account. Submit your site and its RSS feed. Yahoo takes a bit long in indexing a site. But once you have submitted your site, dont worry much. Your site will be in the Yahoo index in around a month’s time.

You can also get your site indexed on MSN by clicking on the Webmaster link on the bottom of each MSN search page. Submit your site. MSNbot will index your site in a few days. Just focus on these three major search engines. Rest of the search engines are not worth wasting your time.

How Is the Value of the Stock Index Calculated?

Recap – What is a stock index?

A stock index is a statistical indicator that measures the combined value of a number of underlying stock prices. As stock indices are usually formed by a group of leading stocks in a market, they represent the overall health of an economy as well as the value of the stocks.

Although a stock index is not a tradeable product, but the rise and fall of its value can be traded on.

Methods for determining stock index prices

The price of each stock represented in a stock index affects the overall value of the index. However, there are different methods for determining how much weight each stock should be allocated. These include:

• Price-weighting
• Capitalisation weighting/ market-value weighting
• Market-share weighting
• Fundamental weighting
• Float-adjusted weighting
• Equal weighting

Price-weighted stock indices

A price-weighted stock index is an index where the fraction that a stock makes up of an index is proportionate to the price of that stock. This means that a stock trading at $500 will make up 10 times more of the total index when compared to a stock trading at $50.

Price-weighted stock indices do not accurately reflect underlying market values, as the stock trading at $500 could be that of a small company, whereas the stock trading at $50 could be that of a large company. As the stock of the smaller company makes up 10 times more of the total value of the index than the larger company, a change in its price will have a larger impact on the value of the stock index than a change in the price of the larger company. Meanwhile, the combined market values will not change to the same degree as the price of the larger company has not changed.

Also, price-weighted indices need to be constantly adjusted, as the changing prices of stocks will affect their appropriate weight in the index.

Examples of price-weighted indices include the Amex Major Market Index, the Dow Jones Industrial Average and the NYSE ARCA Tech 100 Index.

Capitalisation-weighted stock indices

In contrast to price-weighted stock indices, a capitalisation-weighted/market-value weighted index factors in the size of the company as well as the share price. This means the impact of a company’s price change is proportional to its overall market value, or the share price multiplied by the number of shares outstanding.

Consequently, small changes in large companies will have a greater influence on the value of the stock index than larger changes in small companies.

Some examples of capitalisation-weighted indices include the Hang Seng Index, Kuala Lumpur Composite Index, NASDAQ Composite, NASDAQ-100, NYSE Composite and the Taiwan Capitalization Weighted Stock Index.

Market-share weighted indices

A stock index that is market-share weighted is similar to a capitalisation-weighted index, but a market-share weighted index measures the price of shares relative to the number of shares, as opposed to their total value.

Fundamentally-weighted stock indices

Fundamentally-weighted stock indices weight stock indices by one of many economic fundamental factors, or by a composite of several fundamental factors.

This method of weighting argues that fundamental factors, such as sales, earnings, book value, cash flow and dividends, are a more accurate measure of its value than the share price, which can fluctuate with investor sentiment. One of the benefits of trading on these indices is that they might average out sector-specific biases.

Fundamentally-weighted stock indices are often contrasted to capitalisation-weighted indices. As the method of capitalisation-weighted stock indices focuses on company size and share prices, capitalisation-weighted indices could overweight overvalued stocks while underweighting undervalued stocks, meaning investors can’t see the true value of a company, and that the index doesn’t provide a true representation of an economy. As fundamental weighting weights industries by fundamental factors, an over- or undervalued share value will not have as large an impact.

That being said, although there isn’t a perfect correlation between fundamentals and share prices, there is some correlation, as large changes in fundamentals can result in large share-price movements. This was evidenced in the global financial crisis, when both fundamentally-weighted and capitalisation-weighted indices plummeted.

Float-adjusted weighted stock indices

Traditionally, capitalisation-weighted stock indices have had full-weighting. Full-weighting means that all shares outstanding for each company are included. Recently, many capitalisation-weighted indices have shifted to float-adjusted weighting, which takes into account the proportion of shares a company has free floated.

Both the S&P 500 and S&P 100 indices are now float-weighted.

Equal-weighted stock indices

Equal-weighted stock indices assign each stock in an index the same weight, so a movement in the share price of all companies have the same impact on the index, regardless on the size or market-share of that company.

Discover the Risks of Trading Index CFDs Before Jumping on Board

Trading success can often be the result of minimizing your losses and this very point is emphasized when trading a highly leveraged product like Index CFDs. In fact the golden rule of trading success can be found in the old trading maxim: Cut your losses off short and let your profits run and if you are able to follow this formula for success you should be on the right side of the ledger more often than not.

What is an Index CFD?

Index CFDs are highly leveraged CFD products that enable you to gain access to the main indices around the world. You can begin trading the SPI 200 (sometimes referred to as the Aussie 200), FTSE, Nasdaq, S&P 500, Dow Jones and CAC 40 to name a few. You get an amazing amount of leverage as most CFD brokers allow you to trade at 1% margin or 100 times leverage.

The greatest risk to your trading account

Trading Index Contracts for Difference at 100 times leverage or 1% margin allows you to make extremely large gains or losses on your trading account. It is for this very reason that the number 1 risk to you when trading index CFDs is the way you control your leverage. When trading it is important to understand that you control the leverage on your account. This means that with $10,000 cash in your trading account, you can access as little or as much leverage as you desire. In effect this means you control how much risk you take on board by either trading a very low levels of leverage or trading risky at very high levels of leverage. Clearly the smartest option is to keep your leverage very small.

The hidden costs of trading Commission free index CFDs

Incredible amounts of marketing dollars are spent attracting new market participants to trading index CFDs and the main emphasis is on ‘commission free trading’. Now whilst they are not lying it is important to read the fine print and get a feel for what the real costs to trading this product are. All CFD brokers charge an overnight financing rate which means for every day you hold the position long, you get charged a certain rate. For index CFDs that rate is normally plus or minus 4% as opposed to plus or minus 3% for share CFDs so bear this in mind when trading the indices.

SEO Tactics to Get Indexed, Get Ranked, and Get Traffic

No one can deny that you need traffic to your website in order to succeed online. The best kind of traffic is free traffic. Where’s the best place to get free traffic? Google and other search engines.

How Does Free Search Engine Traffic Work?

The process works in a way that you have experienced many times. You go to Google, enter in a word or phrase you want to research, and click one of the links that shows up. Well, the link you clicked on just sent free traffic to that website owner. What we need to figure out is how to get YOU free traffic.

Most people only click results from the first couple pages. In fact, the first page of results receives almost all the free traffic. Believe it or not, the first 3 results receive over 70% of the traffic.

So to get any significant amount of free traffic from Google, you really need to be on the first page. This means Google needs to “rank” you as a top 10 result. This bring us to…

What Is SEO?

Search Engine Optimization is a measure of how well Google and other search engines think your website matches the search terms people are typing into their search boxes. It’s a complex formula that only people working for Google know exactly. There are several factors that we do know.

Getting Indexed

Before your website can begin gaining ranking, you have to alert Google to it’s existence. This is known as being “indexed.” When your website gets indexed, Google stores information about it in their massive database.

In order to get indexed, Google has to be able to find you. Links from other sites are the easiest way to accomplish this. Google will actually follow the links on sites it already has indexed to find new sites and index them.

Use your Twitter and Facebook updates to get quick indexed links to your site. These sites are indexed multiple times every day so your new link will get indexed very quickly.

Gaining Ranking

After this first hurdle, you need to start gaining ranking. Due to the massive size of the Google database – literally billions of pages – just getting indexed doesn’t do much for you.

Here’s what’s important in ranking:

 

  • Content
  • Links
  • Activity

 

Optimized Content

This is the SEO work you do on your page. It’s critical that your page content is consistent with the keyword phrases you’re targeting. Clearly this article is about search engine optimization. Google knows that not just because the words search engine optimization show up. Another way this is determined is by the other related phrases like traffic generation that are also in the article.

You also need to make sure the title tags, outbound links and the domain itself match the topic of the page. These all play a part in helping Google determine what your website is about.

Your Links

Next, you need to pay attention to the links to and from your site. The links to your site, as well as the sites you link to are important. You want to make sure you have more inbound links than outbound links. And the more inbound links the better.

Article marketing is a super easy way to get a bunch of inbound links. To accomplish this you start by writing an article that targets the keywords you’re after. Then you continue to create articles around these and other related keywords for ever increasing back-links. The more quality articles you write, the more links you’ll get back.

Make Your Site Active

Lastly, it’s seems clear that Google expects important pages to be actively updated. Static pages that just sit may rank at first, but will fall off over time, so you need to update your pages often. RSS feeds are an easy way to keep your content changing.

Another great way to keep your page content fresh is to enable comments on it and allow others to discuss your page topic. This means you need to get real live people to your site, as well. An easy way to do this is from forums.

Set up forum profiles with the ones related to your website and post there often. Put a link to your site in your profile. This gets you inbound links and it will also get real visitors to your site.

Conclusion

It’s important that you do everything listed here. But let’s face it, writing article after article, creating a bunch of forum profiles, and posting your articles and comments takes a lot of time which means you probably will end up NOT doing it.

Fortunately, you can get rank builder software to do all the grunt work for you. The best thing you can do is to automate this process. Otherwise, you won’t do it at all. And if you don’t do it, you simply will not ever get free traffic from Google.

How to Delete Index.dat Files – Completely Erase Internet History

For those of you who are concerned about your privacy and don’t want any other users who have access to your computer to know what sites you’ve been visiting online, need to know how to completely erase internet history. You see you do not fully clear your internet browsing history when you clear the private data, cookies, browsing history etc. using your internet browsers lame privacy tools. In order to permanently delete the records of sites you have visited, pictures you have viewed, videos you have downloaded, or even emails you have sent online, you need to know How to delete Index.dat files. These files are hidden system files that keep a record of every single website and action you’ve performed online and if anyone gains access to them they can see exactly what you’ve been online. So by now I think you would’ve realized the importance of clearing index.dat files and since Microsoft doesn’t provide any utilities to delete index.dat files.

I’m going to show you how in this article.

Index.dat files are used by Microsoft to record information about internet sites that have been visited and details of cookies being stored on your PC. Whenever you visit a website on the net; the URL address, images viewed, time of visit, and other web page contents are all saved to your hard drive. There is no clear explanation as to why Microsoft needs these files but the primary reason is that the contents can be opened up quicker from your hard drive if you re-visit the same page again. One example of its use is when you type in the first few letters of an address in the URL bar that you’ve already visited and the full address quickly comes up, now this is great if you can’t be bothered re-typing the address but it’s a huge invasion of personal privacy if someone else is using your computer.

Anyone with the slightest knowledge of fully searching internet history or has heard about the existence of index.dat files will be able to know exactly what you’ve been doing online. So if you are worried about your privacy then you must learn how to delete index.dat files immediately, before someone else gets a hold of them.

Now I’m afraid erasing or clearing index.dat files is no easy task and it is virtually impossible to accurately delete all the files using manual deletion methods. The reason being, index.dat files are critical system files and are constantly being used by internet explorer and Windows all the time so you cannot simply drag and drop them in the recycling bin. You may be able to remove them using MS Dos if you are using Windows Me, Windows 98 or Windows 95 and then find and delete all the index.dat files one-one. However This is method is pretty complicated and vulnerable to errors as Windows usually stores more than one copy of index.dat and finding them all when they are located in hidden directories can be difficult. If you are using Windows Vista, Windows XP, Windows 2000 or Windows NT this tactic won’t work at all and you will need some help.

Because Microsoft hasn’t provided any utilities to easily delete index.dat files and also considering the fact they are near impossible to erase using manual methods, third party software designers have created programs specifically to erase index.dat files. Usually known as index.dat viewers or index.dat erasers, these programs are easily able to locate all index.dat files and quickly remove them, all at the click of a few buttons. Personally I use a program called Privacy Guardian 4.1 to completely clear my internet browsing history; it is able to fully secure my privacy by ensuring all traces of my online Internet and computer activity are permanently erased and unrecoverable.

So if you wondering how to completely erase your internet history then you must know How to delete Index.dat files. They cannot be deleted easily by manual methods and I must recommend you grab a good Index.dat eraser if you wish to delete index.dat files and fully secure your internet privacy. The good news is that most programs offer a free download so you can remove these files today at no cost. I can guarantee you will feel a lot better and be letting out a strong sigh of relief when you know you actually deleted all your internet browsing history permanently.

How Do Equity Indexed Annuities Stack Up?

Sales of equity indexed annuities (EIAs) have grown considerably in recent years. These products are positioned as simple investment vehicles that enable the investor to participate in market gains but offer protection from market losses. In reality, these are complex investments and because salespeople are paid large commissions for promoting these products, it’s difficult to get an objective opinion on whether they are right for you.

How Do Equity Indexed Annuities Work?

EIAs produce an investment return that is tied to a market index, most commonly the S&P 500. Each product has a minimum guaranteed return (currently, 1% is common) and a cap rate, which is the highest annual return the investment can generate (currently, 8% is common). Consequently, an EIA with these common parameters would generate the same return as the S&P 500 of that return was between 1% and 8%. If the S&P 500 produced an annual return of less than 1%, the EIA would guarantee 1%. Similarly, if the index produced a return greater than 8%, the annuity would be capped at an 8% return.

Further, EIAs have participation rates that commonly range from 70% to 100%. For instance, if the index increased in value by 10% during the year, an EIA with an 80% participation rate would produce an 8% return (80% of the index’s 10% return).Also, it is important to note that minimum guarantees, cap rates, and participation rates can change at the whim of the insurance company.

Other Important Factors

As mentioned previously, salespeople are handsomely compensated for selling EIAs. To protect the insurance firm from paying a large commission to a salesperson only to have the investor sell the annuity, these products have a surrender charge if the investors sells within a certain time frame, which can be as long as 10 years. This surrender penalty can be as much as 10%. Thus, liquidity is severely limited with these investments.

EIAs offer tax-deferral, meaning an investor doesn’t pay taxes on investment gains until the annuity is sold. This tax-deferral is similar to the benefit offered by a 401(k) or IRA. However, unlike investments in a 401(k) or IRA, investments in an EIA don’t reduce your current income or tax bill when the investment is made. For this reason, many financial planners encourage their clients to maximize contributions to other tax-deferred vehicles before considering an annuity.

It’s important to note that most EIAs only count equity index gains from market price changes, and exclude any gains from dividends. Since you’re not earning dividends, you won’t earn as much as if you invested directly in the market. For example, the S&P 500 earned 15.1% in 2010, but 2.3% of that return came from dividends which would not be included in an EIA.

Lastly, the guaranteed return on an EIA is only as good as the insurance company that gives it. While it is not a common occurrence that a life insurance company is unable to meet its obligations, it happens. Information about the financial strength of insurance companies can be found on the SEC’s website.

Investment Return

Suppose a 45 year old with a 40 year investment horizon was looking for an investment that offered impressive returns with relative safety. Would an EIA be a good choice? Let’s consider a $10,000 investment in three unique options: an investment in the S&P 500, an investment in a conservative diversified portfolio* consisting of 75% bonds and 25% stocks, and an investment in an equity indexed annuity tied to the S&P 500. For illustration purposes, let’s assume the annuity has extremely favorable conditions: a 100% participation rate, a 3% minimum guarantee, and a 10% cap rate. Further, let’s give the EIA the benefit of the doubt and assume it includes the portion of the S&P 500’s return due to dividends, which few EIAs do. All and all, this annuity is significantly more favorable than any real product you are likely to find. Since the investor intends to live another 40 years, let’s look at what would have happened to these three $10,000 investments during the last 40 years, starting in 1970.

As you would expect, the $10,000 investment in the S&P 500 grew the most over 40 years, to $495,551. However, this investment endured significant volatility, losing as much as -37% in one year. Clearly, this investment is too risky for an investor willing to endure only a small amount of risk. Alternatively, the $10,000 investment in the diversified 75% bond, 25% stock portfolio grew to $433,838 — still an impressive return. However, the largest loss this portfolio suffered in a calendar year was -6% (1974), which might be tolerable to an investor with a low risk tolerance. Finally, while the equity indexed annuity with unrealistically favorable terms never gained less than 3% per year, our $10,000 investment only grew to $195,479. What if we consider an EIA with more realistic terms: 100% participation rate, 1% guarantee, and an 8% cap rate? Our $10,000 investment would have grown to only $103,767. Clearly, when comparing an EIA to investing in a diversified portfolio with a conservative ratio of bonds to stocks, an investor benefited of accepting a small amount of volatility in their portfolio.

ity indexed annuity without full knowledge of the product? Annuities have a “30-day free look” that enables you to surrender the product free of charge within 30 days of signing the contract. If you recently purchased an EIA, speak to a fee-only financial planner immediately to ensure the product was right for you. If you decide the annuity wasn’t what you thought, a fee-only financial planner can help you exercise your free look provision and find an alternative investment that is more appropriate.

Indexed Universal Life Insurance For Retirement Income

When designed properly, indexed universal life insurance can be a great savings vehicle for investors who have a good ability to save. Indexed universal life or IUL, is a type of permanent life insurance that allows a policy holders to build a cash value. The cash value can be invested in a fixed account that often has a guaranteed minimum interest rate or the owner can derive their returns based on several different equity indexes.

There are several crediting methods that can be used to generate returns on the cash inside the policy. The most common method I see is an annual point to point calculation based on the return of the S&P 500 with a cap rate that protects your principal and limits your upside. When you pay your annual premium, the insurance company deducts some of the premium for state taxes, cost of insurance, and a sales load. After the fees are taken, most of your money goes to the insurance company’s general account and a small portion buys derivatives on whatever index you select.

Let’s say that the insurance actuary believes that they can earn 5.27% on their pool of investments. They would invest $95 of your $100 in their general account expecting that it one year, the $95 would grow to $100. This is how they can guaranty your principal. The $5 in my example would buy derivatives that could make up to a certain return or they could expire worthless if the index you chose has a negative year. The costs of the derivatives help determine the cap rate or the maximum that you can make per year. Most companies have a 10-15% cap rate on the S&P 500 index currently. If your insurance policy has a 12% cap rate on the S&P 500 and the index does 30%, you will have 12% credited to your account for the year. If the index does 5%, you will make 5%. If the index loses 20%, your return will be zero for the year. You do not receive the dividends of the indexes you invest in.

Principal Protection

Some people are very critical of the fact that IUL limits their upside. There is no free lunch. In order to protect your principal, you have to give up some of the upside. These critics point out that because of the cap rate, IULs would have earned between 5-8% per year over the last few decades during a time when the S&P 500 has averaged 9-11%.

I agree that it is possible to make better returns IF you are willing to stomach the risks of owning an all stock portfolio and my experience has taught me that very few people are able stay invested when the financial world is in a panic. The latest study from Dalbar was recently released and it shows that the average equity investor has averaged 3.79% over the last 30 years while the S&P 500 has averaged 11.06%. Even worse, the average fixed income investor made .72% per year, which is only 1/10 of the return of the Barclays Aggregate Bond Index.

Because it is so hard to stick with an investment plan that does not appear to be working, I think a percentage of the population would be better off in a product like IUL that limits their gains, but provides principal protection that helps them sleep better at night.

Creditor Protection

Texas law states that the cash value in your life insurance is protected from creditors. This is a very important feature for people in the medical profession and business owners. Money held in your bank account or brokerage account is generally not protected. This may not seem like a benefit to you, but consider the fact that a home owner and tree trimming company were successfully sued for millions of dollars because an oak tree fell on the current Governor of Texas in 1984 rendering him paralyzed. I didn’t know I needed to worry about the trees in my yard bankrupting me until I learned this.

Did you know that when you sell your car, you can be held liable for tickets and criminal and civil liability if the new owner doesn’t change the title of the vehicle to their name? It is important to go to the tax office with them or submit a vehicle transfer notification to the DMV right away. The more experience I have under my belt, the more I realize how risky life can be.

Tax Benefits

The cash value inside indexed universal life insurance grows tax deferred and if designed properly can be pulled out as tax free loans that don’t have to be paid back during the insured’s life (the insurance company uses some of the death benefit to pay off the loan). The only return that really matters is what you keep after taxes and after inflation. If you are in the highest Federal income tax bracket of 39.6% you are now subject to an extra 3.8% Medicare surtax on investment interest under the Affordable Care Act. If you make 6% inside your tax deferred IUL policy, that is a 10.6% tax-equivalent yield for the highest tax bracket.

In addition to tax deferral, you can pay zero capital gains tax by borrowing against your cash value. You can borrow to buy your next vehicle, for a real estate down payment, or to fund your child’s college. You can choose to pay these loans back or potentially never pay them back. Page 27 of the 1990 GAO Report to the Chairman clearly states “If a policyholder borrows the inside buildup from his or her life insurance policy, the amount borrowed is considered a transfer of capital, not a realization of income, and, therefore, is not subject to taxation. This reasoning is in accord with tax policy on other types of loans, such as consumer loans or home mortgages.

Diversification

Stocks and safe government bonds often have low to negative correlations. There are very few years where the US stock market and US government bond market both lose at the same time. However; many take comfort knowing that in down stock markets, they can pull money from their insurance policy that has principal protection. This can be a very useful tool when one considers the risk of the sequence of returns when distributing money in retirement. Pulling money from stocks in a year like 2008 can seriously hamper one’s ability to maintain their standard of living during the rest of their retirement.

There are also times where the US stock market is a lousy long term investment. The S&P 500 hit 1552 in March of 2000 and was at the exact same level 13 years later because of the tech wreck in 2000-2002 and the Great Recession in 2008-2009. This was an ideal environment for indexed universal life insurance because your principal was protected during the crashes and the crashes made stocks cheap where they had a good chance of going up and hitting the cap rates on the IUL policies. During long term bull markets (like 1982 to 2000) you would expect a capped IUL policy to do worse than the return of the US stock market.

Arbitrage

When you withdrawal money from your brokerage account or 401(k) and spend it, the money is no longer invested and working for you. This is not the case with indexed universal life insurance. When you borrow from your policy for retirement income, the insurer is lending you money and using the cash value in your policy as collateral for the loan. This means that you could have a $200,000 loan at 5.5% interest against the cash value in your IUL policy. If over the course of your loan, your policy averages a 6.5% rate of return, you are making a 1% rate of return on all the money you spent to live on.

The chance of being able to make a small spread on what you have borrowed and the downside protection of the product could potentially allow you to withdraw a higher percentage of your cash value per year than you could from volatile investments that don’t have principal protection. I ran an IUL illustration on a 37 year old male who had an average return of 6% per year until age 65 and found he could borrow 4.8% of the cash value in the first year of retirement and continue to increase that initial amount by 3% each year until age 100. In simpler terms, the arbitrage and principal protection may allow you to pull $48,000 indexed for inflation from $1 million dollars of cash value in an IUL.

4.8% is a lot higher than most financial planners would be comfortable pulling from a traditional portfolio. One of the most common amounts planners consider safe to pull from your investments is 4%. This has even come to be known as the 4% rule. Retirement Researcher, Wade Pfau, recently estimated that retirees should consider pulling only 2.85% to 3% initially from their investments. That would mean you should only pull $30,000 indexed for inflation from a million dollar portfolio. If Pfau is correct, having a maximum funded IUL for retirement could be a nice addition to your retirement.

Death Benefit

The last benefit of saving into index universal life policies is to remember that you are buying a life insurance policy. If you pay one month or year’s premium and die prematurely, your heirs could literally have a 1,000% return on the money you invested. If this unlikely and unfortunate event happens, life insurance is the best thing that you could possibly have invested in. And the best thing about life insurance is it is tax free to your heirs.

I also like how many IUL policies have a free accelerated death benefit rider that allows you to take a portion of your death benefit while you are alive if you are terminally ill. You could use part of your death benefit while you are alive to take your family on one last vacation or to pay for a long term care facility.

Disadvantages

The biggest disadvantage to IUL policies is that they usually have 10 to 15 years of surrender charges or fees to get your money out. You need to fully understand the product and be committed to it. The products also front load their costs and most illustrations that I run at 6% don’t break even until year 7 to 10. Therefore, it is usually a bad idea to apply for a policy and cancel it early on.

The second disadvantage to IUL is that the cap rates can and will change throughout your ownership of the policy. Many policies only guarantee a minimum cap rate of 3% or 4%. As mentioned previously the cap rate is a function of the cost of buying derivatives. Volatility was very high in 2008 which made derivatives more expensive. I did not see any companies dramatically drop their cap rates at that time and don’t see this as a huge risk. If for some reason your IUL dropped cap rates near the minimums, you could change to a different index crediting method or you could invest your cash value into the fixed account for a period of time.

Lastly, life insurance illustrations always show guaranteed values and non-guaranteed values. It is very likely that we continue to operate under the non-guaranteed assumptions, but if Ebola killed massive amounts of people or AIDS became airborne, all insurance companies can raise their charges for insurance and administrative costs after receiving approval from your state. In this rare event, life insurance contracts would be considerably less attractive than policy owners were expecting.

Conclusion

IUL is not right for everyone. If you design a policy that buys the least amount of insurance to get the maximum amount invested, you can add diversification to your portfolio, have tax flexibility in retirement, and make attractive after-tax returns. If you would like to see what it would look like to save into an IUL, please give me a call. We can determine the amount that you want to commit towards saving into a policy and then find the right one for you based on your health history. Because I am independent and not beholden to one company, I can shop all IUL carriers to find the best option that meets your needs.

Solar PV – The Smartest Investment For 2011? And You Get Free Electricity!

A 10% tax free, index linked income for 25 years, guaranteed by the Government that’s environmentally friendly and provides free electricity.

When you install a Solar Photovoltaic (PV) system at your property you can now earn around 10% per annum tax free guaranteed by the Government for the next 25 years. Solar PV is the amazing investment and environmentally friendly opportunity that was introduced by the UK Government in April 2010. This is when the ‘Feed in Tariff’ (FiT) was introduced to increase the rate you get paid for the microgeneration of electricity at your premises.

The FiT is index-linked for the next 25 years making it inflation proof. In the context of the Spending Review in October it is one of the few areas where there is real certainty to invest your money safely and wisely for the future with exceptional, tax free returns.

In setting out to stimulate consumer demand for microgeneration (the production of clean energy on a domestic scale), the Government have set the FiT very high for a limited period. This means that only households and commercial enterprises that complete their installation before March 2012 will qualify for the highest rate tariff.

As soon as you are installed you are locked into the index linked scheme and its benefits for the next 25 years. This includes the annual cash benefits of the FiT, free electricity and knowing that you are reducing your CO2 footprint.

So what are the catches? There aren’t any. Your installation needs to be carried out by an MCS qualified installer in order to claim your 10% tax free, indexed linked, 25 year income that’s guaranteed by the Government.

The roof needs to be southerly facing and shadow free for most of the day. The panels are mounted onto the roof using a hidden lightweight aluminium framework. The DC electricity produced by the panels during daylight hours is converted to AC by an inverter. This will usually be in the loft space or near your electricity supply.

Finally, a meter measures the amount of electricity that your system generates (in the same way that your current meter measures what you use and are charged for today). A typical installation will involve two installers and a qualified electrician working at your house over a couple of days. It is a straightforward job with most of the work taking place outside.

The highest rate FiT is 41.3p per kWh and applies to systems up to 4kW in size. This is typically four times the price paid for electricity from the grid and is paid regardless of how the electricity is used and even if you don’t use any of it.

On top of the FiT, you add the value of electricity that you have saved by using some of what you’ve generated. Finally there is an income called the Export tariff which is calculated as 50% of the electricity that you generate being fed back into the grid.

If any of this sounds complicated, it really isn’t; once your installation is completed, the Solar PV system is connected seamlessly to your present electricity supply and your new meter is ready to calculate how much electricity you have generated and what your annual revenue is.

And there are a range of investment options depending on what return you are looking for. From wholly owned systems through shared ownership and even free systems, where you rent your roof for free electricity, the options are many and varied.

Glycemic Index Vegetables

Vegetables are known for their ability to maintain good health. Low glycemic index vegetables are rich in vitamins and minerals. It is recommended that you eat least 2 -3 servings of low glycemic vegetables per day. Vegetables should be eaten in moderate amount.

Low glycemic index vegetables can cause a moderate rise, in sugar levels, the blood system. There are two main types of vegetables, including low and high GI vegetables. High glycemic index vegetables can increase the glucose level in the blood beyond the optimal level. Vegetables with high index scores include legumes, and starchy vegetables. Examples of starchy vegetables include potatoes, yams and etc. When you know the index rating of each vegetable, you will be able to control the sugar level in the blood efficiently. In addition, your body will be resistant against diabetes, cancer and heart disease. Eating lots of vegetables will enable you to maintain a healthy weight.

Low glycemic index vegetables are also rich in fiber. Fiber is a type of carbohydrate. However, the stomach cannot digest fiber and because the stomach cannot digest fiber, it cannot increase the glucose level in the blood system. After you eat a food, the stomach will break down the carbohydrate into glucose. Glucose can increase the level of insulin in the body. Insulin can increase the energy of the body and makes you active. After you have used up the energy, the excess insulin will be stored in other organs such as muscles and the liver. When there are no more places to store the glucose in the organs, the body will then store the excess glucose as fat in other parts of the body.

By eating vegetables, you can maintain an optimal weight because they have a low amount of carbohydrate. It is important to have low glycemic meals every day. A single low GI meal cannot lower the glucose level in the body efficiently. Eating vegetables can burn off the excess fat in your body. Vegetables can eliminate the high lipoprotein cholesterol in the blood, again helping you to have a healthy body.

If you want to find out the exact glycemic value of each vegetable, you must reference the GI food chart. You can find free information on low glycemic index vegetables on the internet. Many websites offer index rankings for different ranges of vegetables. Some websites provide more comprehensive GI information than others – look around. Therefore, you should visit a variety of websites so that you can compile the most comprehensive vegetable GI list.