If you’ve ever seen a Lincoln Index Universal Life (IUL) insurance ad before, its promise to grow your income might have caught your attention. Lincoln IUL is just one of many types of life insurance policies that are able to build your wealth. Another excellent option is Interest Sensitive Whole Life Insurance.
I’ll admit: there isn’t a lot of information available online about either of these types of life insurance or how you could use them to invest and generate more cash…which is why I decided to create this article from my experience as a licensed financial agent.
Keep reading to find out what Interest Sensitive Whole Life Insurance is, how it compares to insurance policies similar to Lincoln IUL, and my top 5 ways to use these life insurance policies to earn more money!
What is Interest Sensitive Whole Life Insurance?
Interest Sensitive Whole Life Insurance is a type of permanent life insurance that offers features from both Whole Life and Universal Life Insurance policies. As the name suggests, Interest Sensitive Whole Life Insurance shares more similarities with traditional Whole Life Insurance plans.
Therefore, it would be helpful first to learn how Whole Life Insurance works in order to understand the terms of Interest Sensitive Whole Life Insurance.
The main similarity between Whole Life and Interest Sensitive Whole Life is that they both offer fixed monthly premiums for a guaranteed death benefit. This means that you will pay the same monthly amount to maintain your policy for the rest of your life.
In exchange for these premiums, your beneficiaries will receive a lump sum of cash to cover expenses after your death. This type of policy also includes a cash value component which allows you to earn more money.
How does Interest Sensitive Whole Life Insurance compare to a Universal Life Insurance policy?
Universal Life Insurance is a more flexible type of permanent life insurance. This policy allows you to adjust your monthly premiums according to your budget. Therefore, you can pay less toward insurance when circumstances change and your family needs more cash to stay afloat.
Unlike whole life insurance policies (which earn interest on their cash value account at a fixed rate), Universal Life and Interest Sensitive Whole Life Insurance policies use current market rates to add profits to your cash value account. As a result, it may be faster and easier to earn more money with Interest Sensitive Whole Life Insurance than with a traditional life insurance policy.
Want to leverage life insurance to invest in real estate? Check out my course, The Purpose of Money Maximizer!
What is Lincoln IUL?
Lincoln IUL is a form of Index Universal Life Insurance (IUL) offered by the Lincoln Financial Group. That brings up the question: “What is Index Universal Life Insurance?”
An Index Universal Life Insurance policy, like Lincoln IUL, is a subtype of Universal Life Insurance. The primary difference between Universal Life and Index Universal Life is how interest is gained on your cash value account. While Universal Life Insurance uses compound interest to grow your cash value, IUL policies earn cash value by investing in a stock market index like Fidelity AIM® and the S&P 500®.
For example, Lincoln invests their proceeds into the stock market. Then, when the stock market rises, you could earn anywhere from 10 to 12% interest on your cash value account. Basically, Lincoln splits some of the gains from the stock market with policyholders and pays them in the form of interest.
Worried about what happens when the stock market crashes? The good news is that Lincoln’s IUL has a 0% floor preventing you from losing any cash value when stocks plummet. It’s not as volatile as investing directly in the stock market.
Since Interest Sensitive Whole Life Insurance and Lincoln IUL are both types of permanent life insurance, you could use either policy to earn more cash. However, you need to be wise about how you use the money from your life insurance policy.
There’s one main technicality to permanent life insurance policies that you should know about before spending your cash value account. My clients are always shocked to learn about this, so I want to let you know this secret before it’s too late.
What to Consider Before Using Life Insurance to Invest
The principal purpose of life insurance is to provide financial support for your family after you die. The cash value account is merely an added benefit to your life insurance policy.
Any money you spend from your cash value account will be subtracted from the death benefits given to your family. The more cash value you invest, the fewer funds you leave to sustain your loved ones.
With this in mind, is it even worth investing money from your life insurance?
It depends on your circumstances.
Using cash from your life insurance policy is safe if you already have a large savings account. In that case, your beneficiaries will be able to withdraw from your savings and use the balance of your death benefit as a supplement rather than their main source of income.
Besides, there’s no rule saying you have to spend every penny in your cash value account. You decide how much you want to spend based on your needs, and there are multiple ways to do that.
5 Ways to Use Interest Sensitive Whole Life Insurance
Below, I’ve listed the top 5 ways you diversify your Interest Sensitive Whole Life Insurance investments. Thinking of investing in an Index Universal Life Insurance policy (like Lincoln IUL) instead? No worries—I also highlighted which of these methods apply to IUL Insurance policies.
1. Withdraw Your Insurance Cash Value
You can withdraw some (or all) of the money in your cash value account to pay short-term expenses such as:
- Next month’s rent
- Appliance purchases
- Wedding preparations
- Travel plans
I love seeing the look on people’s faces when they find out they can use part of their permanent life insurance policy to fund vacations. So, you can spend your Interest Sensitive Whole Life Insurance or Lincoln IUL cash value funds into whatever you want!
That’s not all…The best part about being able to borrow from your cash value is that you won’t have to pay taxes to the IRS on the borrowed money.
The only downside to these options is that the returns are short-lived. Check out the other options below if you’re looking for long-term investment opportunities.
2. Borrow Against Your Interest Sensitive Whole Life Insurance
Need a loan but don’t have any property? Then you’ll be happy to know that you can use your Interest Sensitive Whole Life Insurance or Lincoln IUL cash value account as collateral for a personal or business loan. You could either apply for the loan through your life insurance provider or directly at the bank—whichever institution offers better interest rates.
3. Cash Out Your Whole Life Insurance Dividends
Whole Life Insurance providers occasionally return a portion of their policyholders’ paid premiums to their accounts. We call these returns “dividends.” The exact value of the dividends you receive depends on how much profit the life insurance company made for that year. Some Interest Sensitive Whole Life Insurance policyholders also receive dividends from their life insurance providers.
Some policyholders re-invest their dividends into their cash value account to increase their interest earnings. On the other hand, you could also withdraw your dividends on a tax-deferred basis and invest the money into personal or business-related expenses.
Bear in mind that this isn’t guaranteed with every Interest Sensitive Whole Life Insurance. Only participating whole life insurance policies qualify. So, be sure to ask your insurance agent about this feature before finalizing your purchase.
Lincoln IUL and other Index Universal Life Insurance policies do not receive dividend payments.
4. Convert Your Interest Sensitive Whole Life Insurance to an Annuity
You can use your Interest Sensitive Whole Life Insurance to supplement your retirement savings by converting your policy into a Whole Life Annuity.
A Whole Life Insurance annuity is a financial product that allows you to receive scheduled payouts for a designated number of years. If you choose to convert your Interest Sensitive Whole Life Insurance to an annuity, your life insurance provider will cancel your death benefits. Then they’ll release the funds to you as a monthly, quarterly, or yearly income.
You could request to be paid off within 10 to 20 years or until you die. Regardless, you won’t have to pay taxes on any of the money you receive from your annuity.
As good as this sounds, Whole Life annuity isn’t available for Index Universal Life Insurance policies like Lincoln IUL. It’s something to consider if you’re still indecisive about choosing Interest Sensitive Whole Life Insurance vs. Lincoln IUL or some other type of Universal Life Insurance.
An annuity policy may be a lucrative option if you don’t have substantial savings and are near retirement age. You can use the money to supplement your Social Security, 401(k), or Roth IRA retirement funds. However, not all Whole Life Insurance annuities will reserve the death benefits from your life insurance policy.
Many Interest Sensitive Whole Life Insurance providers will convert your entire policy into an annuity, leaving you without life insurance. However, a few life insurance providers allow you to reserve a certain amount of funds as a death benefit for your family.
Are you unsure which life insurance companies allow you to earn recurring income and save money for your family? Book a free consultation with me so we can discuss your options and find the best policy for your needs.
5. Sign Up for a Charitable Remainder Trust through Your Whole Life Insurance
You can open a Charitable Remainder Trust as another avenue to earn recurring income from your Whole Life Insurance cash value account.
How does a Charitable Remainder Trust work?
You will donate a portion of your cash value into a trust with a small tax deduction. Part of the trust will be paid to your account as a scheduled income for a designated period, after which the remaining cash goes toward a charitable organization.
Setting up a Charitable Remainder Trust is an excellent way to earn long-term capital from your life insurance investment. At the same time, you’re giving back to your community. You may choose to donate to a charity through your Interest Sensitive Whole Life Insurance, Lincoln IUL, or almost any permanent life insurance policy.
Interest Sensitive Whole Life Insurance vs. Lincoln IUL: Which is the Better Policy for Investment?
You can create both short- and long-term investments with either of these two life insurance policy types. Yet, you might be interested in building your cash value with additional funds from insurance dividends. Interest Sensitive Whole Life Insurance might be right for you if that’s the case.
Nevertheless, Lincoln IUL will be a better fit for your situation if you’re looking for a life insurance policy with variable rates and greater investment returns.
How to Choose Between Interest Sensitive Whole Life Insurance and Lincoln IUL
Besides investment options, you should also consider if your life insurance policy is affordable. If you want to pay fixed premiums that you can track through your budget, Interest Sensitive Whole Life Insurance is an excellent option for you. However, Lincoln IUL or another IUL would be better if you need more flexible payment terms.
There are many factors that go into finding the right insurance policy for your financial goals and lifestyle. I understand if you’re not sure which life insurance policy will work for your situation. If you’re ready to achieve financial wealth, book a free consultation with me now. I’ll help you find the best life insurance policy for you and your family!