Can I use IUL to buy a car?

Asked by: Eveline Swift  |  Last update: May 16, 2025
Score: 4.5/5 (33 votes)

Funding Major Purchases: Instead of relying on traditional bank loans with high interest rates, you can borrow from your IUL policy to finance significant purchases like a new car or a home deposit. Since you're borrowing from yourself, the interest you pay goes back into your policy, accelerating its growth.

Can I use my life insurance money to buy a car?

Yes, the cash value of a life insurance policy could be used as collateral for a loan. This can be a valuable option for policyholders who need access to funds while still maintaining their life insurance coverage.

Can I get a loan from my IUL?

Loan Interest: While you can take out loans against the cash value of your IUL policy, those loans often come with interest rates. If not managed carefully, the loan interest can accumulate and reduce your cash value and death benefit.

What is the bad side of IUL?

An IUL is a very bad option for retirement planning. As with any investment tied to an index fund, your returns will be mediocre at best. About the most you can expect the cash value to do is beat inflation over time—and even that's iffy.

How to build wealth with IUL?

You pay a premium in exchange for potentially lifelong coverage and have the opportunity to build cash value over time. Part of your premium payment goes toward the cost of insurance — i.e., paying out the death benefit — and other fees. The rest is added to your cash value.

ACCOUNTANT EXPLAINS Should You Buy, Finance or Lease a New Car

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Why do rich people use IUL?

Indexed universal life (IUL) insurance offers several compelling advantages for estate planning: Large, Tax-Free Death Benefit: The money paid to your beneficiaries is generally tax-free, allowing for the efficient transfer of a greater portion of your wealth.

What is the 7 pay rule for IUL?

What is the 7 pay rule for IUL? In simple terms, the IRS “7-Pay Test” states that if the cumulative premiums paid during the first seven years exceed the amount needed to have the policy paid up in seven level annual payments, the policy becomes a Modified Endowment Contract (or MEC).

Can you lose money in an IUL?

While you may not lose any money in the account if the index goes down, you won't earn interest. If the market turns bullish, the earnings on your IUL will not be as high as a typical investment account. The high cost of premiums and fees makes IULs expensive and considerably less affordable than term life.

How much money do I need to open an IUL?

The minimum amount you need to start an IUL life insurance policy varies between insurers and depends on your chosen coverage amount and premium payment method. Annual payments for an internationally indexed universal life policy start at around US$20,000 yearly and rise to $100,000 or more in premiums.

What is better than an IUL?

IUL vs.

Indexed universal life (IUL) policies have flexible payments with cash accumulation pegged to the performance of an equity index. Whole life insurance is safer and simpler. IUL has higher upside potential, but is riskier and takes more work to manage.

Can I cash out my IUL?

Like other types of universal life insurance, IUL holds a cash value that increases as premiums are paid. You can receive the cash value if you cancel the policy, or you can take out a loan and use the funds for other purposes.

Who has the best IUL?

The Best IUL Companies of 2024 & Why
  • IUL with the Best S&P Strategies + Guarantees: Penn Mutual.
  • IUL with the Best Company Strength: Nationwide.
  • IUL with the Widest Selection of Strategies: Allianz Life.
  • IUL with the Best Response to Rising Rates: Columbus Life.
  • IUL with the Best Chronic Illness Rider: National Life Group.

What is the cash value of a $10,000 life insurance policy?

Say, for example, that you purchase an insurance policy with a face value of $10,000. Once the policy matures, the cash value of the policy should equal $10,000.

Can you buy a car with insurance money?

Determining how to buy a car after a total loss depends on your insurance payout. If the car is already paid for, you can put the entire settlement toward a new car. If the payout based on the ACV is less than you owe on the car, you'll have to pay off the loan first, or else roll over the balance into a new car loan.

What is a max funded Iul?

A max-funded Indexed Universal Life (IUL) policy is designed to build maximum cash value by funding the policy up to legal premium limits. This structure enhances cash growth potential without triggering tax penalties, making it a strategy for those seeking life insurance with significant tax-advantaged savings.

How to use IUL to build wealth?

You and the bank pay for an indexed universal life policy. You pay 25% of the total premiums, and the bank pays 75%. After 15 years, the cash value builds up enough to repay the bank for its contribution and interest. Then, you have a paid-up life insurance policy to use however you want.

What are the downsides of an IUL?

Con: Index Growth Options Are Capped or Diluted

Generally, an IUL product will capture only a portion of the stock market's annual gains, since the market usually moves up violently in spurts. Oftentimes, your IUL's annual growth will get cutoff wherever your IUL's cap happens to be (around a 9-10% cap in 2023).

How soon can I borrow from my IUL?

You can generally borrow money from your life insurance policy once the cash value component has met a certain minimum threshold. However, to take the loan you want, the cash value balance must also reach an adequate level to provide collateral for the loan size you want.

Is IUL better than 401k?

IUL contracts protect against losses while offering some equity risk premium. IRAs and 401(k)s do not offer the same downside protection, though there is no cap on returns. IULs tend to have have complicated terms and higher fees.

What is the average return on an IUL?

IUL policies typically allow you to grow a portion of your premiums through allocation to an index. Insurers often offer a growth cap of 8-9% and floor of 0%. This allows for upside potential with downside protection.

Which is better, IUL or Roth IRA?

They also provide tax-free income in retirement. Therefore, investors concerned about their family's welfare after they're gone may prefer an IUL, while those who want a tax-free income stream during retirement can opt for a Roth IRA.

Can you pull money from an IUL account?

Can you withdraw money from your IUL Account? You have the option to borrow against your cash value through a policy loan or withdraw cash value. Once you pass away, your beneficiaries do get a death benefit. However, this amount will be reduced by any loans not paid or withdrawals you took from the cash value.