Adding Additional LIRP Features Like Multipliers and Bonuses to an IUL

In addition to the ability to earn a nice return without any market risk, you may find that there are some other perks associated with life insurance retirement plans as index universal life insurance plans.

Some IUL index choices may include multipliers and / or bonuses.

For instance, an IUL policy may add additional funds to the account value – over and above any index credits – yearly. These bonus interest credits could be added by way of a flat rate bonus (i.e., an additional fixed interest rate), or a percentage multiplier bonus.

Why Multipliers and Bonuses Can Really Add Up

The multiplier bonus could take whatever index credit is paid for the current year and then “multiply” it by one plus whatever the percentage multiplier rate is. As an example, let’s say that an insurance company will pay an additional 15% on top of the rate that is returned by the index strategy in a given year.

If the current return is 8%, by multiplying that rate by an additional 15%, the return that is credited for that year would go to 9.2%. (15% of 8% is 1.2%. This, added to the 8%, would equal 9.2%).

Today many IUL carriers offer 15% multiplier bonuses and some carriers even offer 40 and 56% multipliers.  Over long periods of investing these bonuses can add up to help you outperform indexes such as the S&P all while having no downside risk like being invest in the index itself.

Pros and Cons of “Extra” IUL Multiplier & Bonus Benefits

While these bonus-related figures can be enticing, it is important to know about any “tradeoffs” you may need to make in order to get – and keep – these added benefits such as asset charges.

In addition, the interest bonus on an IUL policy may only apply to the un-borrowed account value as versus the full amount. So, depending on whether you’ve accessed some of the cash through a loan (or you plan to do so in the future), this could make a big difference.

Also, there could be an added charge for the privilege of receiving these types of bonuses – and if so, receiving the bonus in return for the added premium could end up simply being a “wash.” With that in mind, it is essential to know how all of the components of a LIRP work before making a commitment to one of these plans.

Who Can these additional IUL Features Benefit the Most?

While some of the added perks like multipliers and bonuses can be beneficial, these LIRP add-ons are not right for everyone. Typically, though, younger individuals who can take on a bit more risk – in return for more upside potential – and who are dollar-cost averaging into the plan could be a good fit.

That’s because, over a longer period of time, bonuses and multipliers can really help a life insurance retirement plan to perform like a variable account (i.e., one with the opportunity for more gain), while at the same time exposing you to far less downside risk.

In some cases, an insurance carrier’s index account can offer more than 20% credits once they multiply. So, for the right individual and time frame, using these LIRP strategies could turn out to be highly advantageous.

One of the key benefits of owning a LIRP is the ability to access the funds that are inside of the cash account tax-free. Unlike a traditional IRA or 401(k) plan, where your money grows tax-deferred, but it comes out partially – or even fully – taxable, there are strategies available with LIRPs where you can receive distributions without paying tax. But it is important that go about accessing the funds from a LIRP in the proper way. Otherwise, the money that you access could become taxable.