Investment Grade Insurance Contracts

What Is an Investment-Grade Insurance Contract?

An investment-grade insurance contract is an insurance contract that allows you to not only invest your money without having to pay taxes on its growth, but can withdraw it when you need it, also without having to pay taxes on the withdrawal. That means you can put your money away, make interest, earn interest on your interest, and not share any of it with the government as it grows.

You can also leave it to your heirs without subjecting it to income tax. So no taxes while it is accumulating, no taxes while you are distributing it, and no income taxes while your heirs are inheriting it.


What’s the Difference Between an Investment-Grade Insurance Contract and Government-Regulated Vehicles like IRAs and 401[k]s?

Those are not the only distinctions between investment-grade insurance contracts and government-regulated vehicles like IRAs and 401(k)s. Unlike the more traditional retirement accounts, investment-grade insurance contracts grow without any stock market risk while still offering competitive growth, don't impose penalties for early withdrawal (and you can choose whether to pay it back), and it comes with a death benefit beyond the cash value. And the death benefit is permanent and guaranteed. There is no term that expires after a certain number of years. It's also tax free.

Another benefit is long-term care and chronic care expenses. Because the death benefit is guaranteed, there are ways to access a part of the death benefit to pay for assisted living or long-term expenses while you're still alive.

On the other hand, you can't write off your premium contributions like you do with an IRA or 401(k). And like any other life-insurance product, your overall health is a factor in qualifying, so not everyone will qualify. But then again, you can be the owner of the contract but not the insured, so you can still use this strategy if you have an insurable interest in someone who is insurable—like a spouse, child or key employee.

Why Haven't I Heard of an Investment Grade Insurance Contract?

Recently, many financial advisors have started to recommend using investment grade insurance contracts to supplement retirement savings. This unique savings vehicle has changed the way advisors around the country view insurance contracts. Insurance contracts in general are some of the most often misunderstood financial vehicles on the planet and yet they offer some opportunities that cannot be found in any other financial products. Why should you care? Because not knowing about the unique advantages of an investment grade insurance contract could cost you tens of thousands of dollars in missed opportunities.

Let’s take a look at some of these opportunities and then we can break down for you just what an investment grade insurance contract really is. There are many financial vehicles that allow your money to grow tax-deferred while you are trying to grow your nest egg.

Tax-deferred growth is an advantageous pursuit. Making interest on your interest without having to split that growth with Uncle Sam means that you will end up with a much larger account than if you had to pay taxes along the way. Even if you have to pay tax at the end when you pull the money out you still end up way ahead of an investment vehicle that offers no tax shelter.



What if your money could grow not only tax-deferred but you could pull your money out tax-free whenever you need it?

How much better off would you be? An IGIC can help you do exactly that if you know how. But before we get into what it is and how to set one up let’s talk about another unique advantage. So far we talked about this IGIC offering tax-deferred growth during the accumulation stage of your life and then tax-free distributions during the distribution stage of your life and then lastly we talked about how this plan can be passed on to your children income tax-free in the wealth transfer stage of your life but are these the only benefits? Actually no. There are at least 3 other advantages.

First, in addition to the tax break, your money can grow without any stock-market risk. This makes for a very nice supplement to most government-regulated retirement plans like 401(k)s that are often subject to sharp stock market losses. Yet even with this protection in place the return on your money can also be very competitive. And interest is compounded, so even your interest is earning interest.

The second additional advantage of the IGIC is that when set up properly, you have very liberal access to your money. If you are currently using IRAs or 401(k)s, your money is generally tied up until you are 59 1/2 years old except for certain rare circumstances.

If you borrow out your funds from a qualified account, beware, because stiff penalties apply if you don’t pay the money back on their terms and in their time frame. You may end up garnishing your own wages just to pay back what is supposed to be your own money. None of these harsh requirements are involved with an IGIC. Access to your money is much more easily accomplished because the plan is not a government-regulated retirement vehicle.

The final advantage is the most important one to some people and not really a concern to others. If you happen to die prematurely, the IGIC pays out a large lump-sum insurance payment to your heirs that always ends up being much more of a payout than what you actually paid in. Are you starting to see how this could benefit your life?

How Do I Go About Setting Up an Investment Grade Insurance Contract?

An Investment Grade Insurance Contract is simply a permanent life insurance policy that has been set up in exactly the “opposite” way that most insurance agents tend to set them up.

Commonly, a life insurance agent will first determine how much life insurance you need. Then he or she tries to calculate the largest amount of insurance they can give you for the smallest amount of money out of your pocket. When a life insurance policy is structured using that method, a good portion of your premium dollars ends up going back to the life insurance company in fees and insurance charges. You will most likely be disappointed in the growth of your cash value.

Alternatively, if we take the focus off the death benefit—assigning you the least amount of death benefit that the IRS requires—we load up your plan on cash-value instead. This is a smarter strategy because the lower the death benefit in relation to your premium the less you pay in insurance charges and the more cost-effective your plan becomes. If you set this up correctly you get all of the benefits mentioned above and a long-term competitive return on your money.

And since no two scenarios are the same, there are an infinite number of variations in the setting up of these plans. You can use whole, universal, variable, or equity indexed universal life. But the product you use as a vehicle to your plan is not as important as finding someone who understands how to set it up correctly to comply with the current tax code, including changes incorporated in the new Trump Tax Plan. The Fortune Law Firm can help you get your plan properly structured.