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I’ve never thought of life insurance as something relevant to my current financial position. As a student accruing loans and not able to save much, life insurance is one of the last things I think about. I know the basics of life insurance: you pay a monthly fee (or something similar) and when a person dies the money from the policy will (usually) go to his or her children. I know there are several kinds of life insurance policies, but I figured I would sort through the differences once I had more cash to save. I never thought of using life insurance to help pay my student loans, let alone a policy I could afford. Enter “Indexed Universal Life Insurance Policy,” or IUL for short. I recently interviewed Jason Cannon, the National Sales Director at Symmetry Financial Group, and he filled me in on the details.

What it is:

An IUL is a cash growth vehicle: You use after-tax money to pay policy premiums and the policy proceeds are tax-free. An IUL is different from other life insurance policies in the fact that part of your monthly premium is invested in a financial index that may give you a larger return than other policies. Since part of the premiums are invested in an index, many compare IULs with 401(k)s. However, having some of your premium payments invested in an index may be in line with your financial goals. More on that later.

How to Use the Policy to Pay Your Debt:

Here is how the IUL can be used to pay your student loans: most IULs allow you to take early withdrawals (or loans) from the policy tax free. You can then use the proceeds from the withdrawal from your IUL to pay down your student debt.The withdrawals are likely penalty free as well, depending on the terms of your policy. According to Cannon and the policies he deals with, you would never want to withdraw money in the first five years. Ideally you would want to wait 10 to 15 years before withdrawing to avoid penalties, but again that depends on your policy. It’s important to note that you do not have to pay back the money you withdraw; it just reduces the payout at death.

The Costs:

According to Cannon, premium payments are commonly paid monthly. When it comes to how much you can expect to pay, Cannon says, “Whatever decade of age the person is in [her or she] should put in that many hundred of dollars a month.” That means if you are in your 20s you put in $200 and if you are in your 30s you put in $300. How much in benefits would you receive? According to Cannon, generally speaking if you are in your 20s and in good health and you put in $200 a month, you can expect about $130,000 to $200,000 in death benefits. That amount of benefits would be the same if you were in your 30s and contributed $300 a month. Again, that amount is a generalization. Remember though, by pulling out money early to pay your student loans, your death benefits would decrease. If you can find a way to fit the monthly payment into your budget, then an IUL may be something you should explore.

Next Steps:

If you are looking for a place to get an IUL, Cannon doesn’t just recommend his company. He also says, “If your family has someone, then start there. The advantage to [dealing with someone you know] is it beats the stigma of dealing with a life insurance agent.” There are some requirements, both health wise and financially, to qualify for a policy.

Cannon wants to remind people that you can use an IUL to help pay for something other than your student loans. You never know what can happen in life and having access to some emergency cash is always a benefit. However, as with any financial decision, I recommend you seek professional advice. This article only highlights some general points of an IUL and should not be construed as a recommendation.

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