“Unmet expectations” could be the 2018 motto for the financial industry regarding saving for retirement. People are looking for secure vehicles for retirement savings, but low interest rates leave the customer with a tough choice: risk the stomach-churning gamble of the stock market or accept more secure savings tools with rates of return that barely perform. Both set up a customer for potential disappointment.
Catholic United Financial offers a third choice to supplement your retirement savings while protecting your family: Universal Life insurance.
The primary purpose of Universal Life, as with any life insurance policy, is to protect your loved ones in the event of your death. But unlike other permanent insurance plans, Universal Life has a policy fund that not only earns a guaranteed rate of return but can also be tapped should the need arise.
Let’s look at a practical example: Elaine, a 54-year-old non-smoker, can purchase a $250,000 Universal Life policy from Catholic United. Her recommended monthly premium payment of $478 would be comparable to the annual amount she can put into an IRA ($5,500 per year, based on income).
If Elaine pays the recommended premium each month, by the time she’s 74 her policy fund could have a value of $106,250.1 (A personalized illustration from your sales rep can show you how your Universal Life policy fund can grow over time.)
Why else can Universal Life be a good retirement savings option?
Attractive crediting rates. Catholic United is currently offering a guaranteed 4.0% annual crediting rate on Universal Life policies for the life of the contract. The 2017 national average interest rates on bank savings accounts was 0.25% APY, and on a 5-year CD was less than 0.5%. The average money market account interest rate in the first quarter of 2018 was 0.12%. Considering the alternatives, a Universal Life policy can be an attractive long-term savings tool.2
The guarantees. Universal Life offers three guarantees that few retirement savings products can claim. First, a Universal Life policy fund is guaranteed to earn interest every month. Second, the annual crediting rate on the policy fund will never be less than the guaranteed rate. Third, a Universal Life plan is life insurance! When Elaine passes away, her beneficiaries would receive the $250,000 guaranteed death benefit of her policy, free of income tax.4 Universal Life insurance delivers on all these promises.
Tax advantages. Universal Life has some serious tax advantages. Elaine can withdraw a portion of the cash value from the policy fund without incurring surrender charges, taxes or penalties.3 Also, the death benefit would be paid to her heirs free of income tax.4
Flexibility. Universal Life insurance can change as Elaine’s Life changes. As she enters retirement, Elaine can adjust the face amount and premium level of her policy to more accurately reflect her financial situation, plus use a portion of the cash value as retirement income.5 For example, some policy owners reduce the face amounts of their policies after they pay off their mortgage, or after their children leave the nest.3
Access to cash. Elaine can access the value of the policy fund in two different ways without surrendering the policy:
Partial surrenders. Unlike retirement savings accounts like IRAs, which in most cases require owners to wait until age 59½ to withdraw their money without an Internal Revenue Service (IRS) penalty, a partial surrender can be taken from a Universal Life policy regardless of age.3
Policy loans. Loans can be taken against the policy fund. Even though interest of 8% per year is charged on policy loans, the borrowed funds continue to earn interest in the policy fund. (At our current annual crediting rate of 4%, the net annual interest rate on a policy loan would be 4%.) Plus, unlike a partial surrender (which would reduce the policy’s cash value and could permanently reduce its death benefit), a policy loan can be repaid.
No income limits. Not everyone can save in an IRA. The IRS places IRA contribution restrictions on individuals and married couples who earn over a certain threshold of annual income. (See your financial advisor for specifics, or visit www.irs.gov.) Universal Life insurance does not have such income restrictions.
No stock market roller coasters. A 401(k) plan can be subject to the peaks and valleys of market performance. Universal Life Insurance from Catholic United is not a variable or indexed product and is free of stock market risk. If the recommended premiums are paid, Elaine’s policy fund would have a slow, steady ride upward without unexpected, stomach-churning plunges.
Before she purchases a Universal Life policy, Elaine needs to remember that Universal Life is a permanent life insurance product. As such, the product has a surrender charge period of 10 years. An insurance professional can explain to Elaine the details of her quote so she can see how Universal Life will fit into her retirement plan.
Get an idea of how a Universal Life policy can fit into your financial picture. Your local Sales Representative can provide you with a personalized quote.
1For example only (Preferred Non-Tobacco rates). Your individual situation may differ. Results assume our current (guaranteed) 4% annual crediting rate and current (non-guaranteed) mortality charges would continue for the future. Premiums (after deduction of a premium charge) are placed in a policy fund that earns interest monthly. Administrative charges, mortality charges and rider premiums are deducted from the policy fund monthly.
3Partial surrenders and face amount reductions must comply with Internal Revenue Service (IRS) guidelines.
4Based on our understanding of current IRS regulations. Neither Catholic United Financial nor the Catholic United Financial Foundation is permitted to provide tax or legal advice. Consult your personal tax or legal advisor with questions about your specific situation.
5Policy allows for flexibility in premium payments, as long as policy fund is sufficient to pay mortality and expense charges for the following month. Total premiums paid at any point in time cannot exceed the maximum amount allowed by IRS regulations.
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