How life insurance can supplement income during retirement for your middle-market clients

The cash value of a fixed index universal life (FIUL) insurance policy can be accessed through policy loans or withdrawals.

Many clients are looking for a way to bridge the gap between their retirement savings and their retirement goals. This is particularly true for Americans in the middle market.

The 2022 Allianz Middle Market Study* found that Americans in the middle market are concerned about potential risks to their retirement. For example, 52% worry about not having enough saved to have the life they envision in retirement. A fixed index universal life (FIUL) insurance policy could help as part of an overall financial strategy.

The study focused on the “middle market” – people age 25 to 45 who are contributing to their 401(k) plan to the full company match and have additional funds that could be put into another financial vehicle. Americans in the middle market want multiple sources of retirement income (88%) and access to funds in case of an emergency (81%). An FIUL policy can address those concerns.

While Americans in the middle market could benefit from a life insurance policy, financial professionals may not be recommending this solution to those clients. Yet this could increase life insurance business, foster new relationships, and help with prospective clients.

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Cash value of life insurance

An FIUL policy offers more than a death benefit that is generally income-tax-free to beneficiaries. It can also help supplement clients’ income during retirement and help them adapt to changes in the cost of living or other unplanned expenses. Clients can take loans or withdrawals1 from the cash value of the policy.

FIUL policies offer the potential to build accumulation value tax-deferred that can be accessed later through policy loans or withdrawals. This can help alleviate concerns clients have about not having saved enough, the potential of having multiple sources of income in retirement, and access to their funds.

The cash value in an FIUL policy isn’t locked away. That means clients can access any available cash value accumulation through policy loans or withdrawals to help provide supplemental retirement income, pay for emergency expenses like medical bills, or help pay for a child’s wedding. The policyholder has the flexibility and control to decide how to use their policy.

To be sure, FIUL is not a retirement vehicle and does not provide a guaranteed income stream in retirement. The policy would need to earn enough interest to support a strategy that uses policy loans or withdrawals. Clients considering a loan strategy should carefully monitor their policy values to help prevent a policy lapse and potential tax consequences. Clients should consult with their tax advisor to discuss their specific situation.

An FIUL policy could help your clients fill in the gap to achieve their desired retirement.

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Learn about life insurance for the middle market

Understand how you can use life insurance as part of a financial strategy for clients in the middle market with these resources.

* The 2022 Allianz Middle Market Study was conducted by Allianz Life as an online survey in August 2022 with 800 respondents, ages 25-40 years. Respondents have an annual household income of $100,000+ and either 1) contribute $20,500 or more to retirement investment accounts, or 2) meet or exceed their employee sponsored match and are making/interested in making additional contributions to another account.

1 Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional.

Indexed universal life insurance policies require qualification through health and financial underwriting.

Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.

Products are issued by Allianz Life Insurance Company of North America, PO Box 59060, Minneapolis, MN 55459-0060.

This content does not apply in the state of New York.