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The Million Dollar Baby

Most of us wish we could have started saving and investing earlier. As parents, you don't want your kids to wait as long as you did. Starting an investment for your kids when they are young is extremely beneficial in setting them up for financial success. By investing in stocks, bonds, or mutual funds for your child's future, you are not only providing them with financial security but also giving them a head start towards building wealth.

As investments tend to grow over time, the earlier you start, the more time your money has to compound and grow. This means that even small investments made when your child is young can grow into substantial amounts by the time they reach adulthood. Moreover, investing at a young age can teach children about the power of compounding and the importance of long-term investing, which can set them up for a lifetime of financial success. As a parent, you want to secure the future of your child in the best way possible. One way to do so is by investing in an Indexed Universal Life (IUL) insurance policy. An IUL is a unique financial product that can provide your child with both life insurance and retirement income in one package. Here's how it works.

Indexed Universal Life (IUL) Insurance Policy

An IUL is a type of permanent life insurance policy that provides a death benefit to your beneficiaries when you pass away. What sets IULs apart from other types of life insurance policies is that they offer a cash value component. A portion of your premiums goes into the cash value account and the cash value grows based on the performance of a selected index like the S&P 500. If the market is up, you get some of the gain, but if the market is down, you don't lose anything. So your IUL will only gain cash value over time and protect you from market volatility. IULs are a popular choice for those looking for a safe and long-term life insurance policy.

Why Buy IUL for Your Child?

If you purchase an IUL policy for your child, the cash value component of the policy has a long time grow. When your child retires, the cash value in the policy can be used to supplement their retirement income. This can be particularly beneficial since most retirement accounts have contribution limits and rules that may change over time. This income will come to your child as a tax free benefit.

Another advantage of purchasing an IUL for your child is that it can provide them with lifelong coverage. IUL policies offer a death benefit that can last your child's entire life. This means that even if your child develops a health condition later in life, they will still have life insurance coverage. Furthermore, since IULs are permanent life insurance policies, they do not have an expiration date. As long as the premiums are paid, the policy will remain in force.

How Does an IUL Work for Retirement Income?

IUL policies are designed to accumulate cash value over time. The cash value grows based on the performance of a selected index, such as the S&P 500. The policyholder pays premiums into the policy, and a portion of those premiums is used to pay for the life insurance coverage, while the rest is invested in the index. Over time, the cash value can grow significantly, and the policyholder can access that cash value in several ways, including taking out a loan or making withdrawals.

The cash value component of an IUL policy can be used to supplement your child's retirement income. They will take out loans against the cash value of their policy. This money is a tax free benefit to them. The loan does not have to be repaid, but any outstanding loan balance will reduce the death benefit.

Purchasing an IUL policy for your child can be an excellent way to provide them with lifelong life insurance coverage and a source of retirement income. However, it's essential to understand that the performance of the index your policy is linked to can have a significant impact on the cash value of your policy. Therefore, it's crucial to ensure that your IUL is built with enough safeguards to ensure that the policy cash value will last for the life of your child.

Case Study

Here's how an IUL policy can provide $145k per year in retirement income. Assuming a monthly premium of $100 per month, the policyholder will pay $1,200 per year. If the policy is purchased for a one-year-old child and the premiums are paid until age 65, the total premiums paid would be $76,800 over 64 years. Most parents will pay the premiums on these plans for their child until they have a full time job and can pay the premiums themselves.

Assuming that the IUL policy in this example has an annual rate of return of 6.5%, which is a reasonable assumption based on historical performance, and that the policyholder stops making premium payments at age 65, the policy's cash value would be about $1.7 million dollars.

When it comes to retirement income, you have a few options for accessing the $1.7 million dollar cash value in your IUL policy. One of the most common methods is to take out tax-free loans against the policy's cash value. As long as the policy remains in force, these loans do not have to be repaid, and they will not count as taxable income. Because these are loans and not withdrawals, the money inside the account is still invested and growing over time. Your child could take a loan on the policy of around $145k of the cash value each year. This would be paid out as a tax free benefit.

Based on the average life expectancy in Utah of 80.6 years, the policy holder would receive $145k for 15.6 years. This is just over $2.2 million dollars of tax free benefit to the policy holder. Upon death, their beneficiaries would receive over $900k as a tax free benefit.


  1. Starting at age 1, the policyholder pays $100 per month in premiums for 64 years, or a total of $76,800 in premiums over the life of the policy.

  2. Assuming an annual rate of return of 6.5%, the policy's cash value could grow to over $1.4 million by the time the policyholder reaches age 65.

  3. At age 65, the policyholder could begin taking out tax-free loans against the policy's cash value to provide retirement income. You could potentially withdraw $145k per year from the policy's cash value, tax-free, until they pass away. If they live to an average age of 80.6 years old, they would receive over $2.2 million dollars during their lifetime.

  4. Upon death, any of the loans they took out on the policy are paid back. The rest of the benefit is paid out in a tax free benefit to their beneficiaries. This would be just over $900k tax free benefit.


IULs can be purchased at about any age. Keep in mind, the older you get, the more expensive the life insurance is and the less time you have to let the cash value grow. We've built IULs that can still give a large death benefit and retirement income to those in their 20s, 30s and 40s, but the monthly premium is much higher. If you'd like us to illustrate a policy for you, please contact us today.


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