Overfunding: This is the Key. It Involves A Complete Mindshift from “How much does this cost?” to “What’s the maximum I can legally put into this?”


What’s Your Objective With Indexed Universal Life Insurance?

With any purchase decision it is important to be clear on objectives. There are a number of legitimate objectives on which IULs can deliver (such as affordable permanent death benefit coverage) but perhaps the strategy it is best suited for is delivering a tax-free stream of retirement income by paying the maximum premium allowable or “overfunding.”

“Overfunding” an Indexed Universal Life Policy

Group of different children having good summertime

Group of different children having good summertime

To “overfund” an indexed universal life insurance policy means to maximize the policy’s cash value growth potential and minimize its net insurance costs over time. When the maximum premium is paid into the policy, cash values grow faster which leverages the net amount of life insurance at risk. The net amount of life insurance at risk is the difference between the actual face amount of the policy less the current cash value. Insurance costs are calculated based on the amount of life insurance at risk at any given point in time. As the net amount of insurance at risk decreases, the costs of insurance decrease and a higher portion of the premium payment can be directed to the indexed account. By overfunding the policy, cash values can leverage the cost of insurance therefore maximizing the cash value growth potential.

How to Overfund Indexed Universal Life Insurance

Overfunding is a life insurance cash accumulation strategy that leverages the maximum allowable policy premiums with the smallest life insurance death benefit to achieve highest return on premium payments net of policy costs over a given time period. You want to determine what kind of payments you can realistically commit to making each period (month, year, etc.) Remember one of the key advantages of a Universal Life policy is its flexibility but you will still want to determine a base plan. Your agent will probably will probably take your information and develop an “illustration” that lays how the policy might play out.