I am a US lawful permanent resident. I am interested to know whether indexed universal life insurances have any upside from a tax mitigation standpoint compared to a regular investment account. I.e., I don't wish to consider any other aspect of the life insurance other than its ability to invest in indices and reduce taxes. I also don't want to consider inheritance matters (e.g., I also don't want to consider taxes pertaining to inheritance). I am not interested in 'combined multi-generational taxes paid by the whole family': my sole interest is the tax I pay personally.
In other words, I could rephrase the question "Are indexed universal life insurances of any use from a tax mitigation standpoint compared to a regular investment account?" as: if I have x USD to save each year, does putting the money into an indexed universal life insurance make any financial sense when taking the taxes into account?
From what I can see, indexed universal life insurances have 3 issues:
- All dividends from the indexed investments go to the insurer.
- The indexed investments have a cap on their returns (e.g., 9.5%/year in the brochure for the indexed universal life insurance "Nationwide YourLife Indexed UL Accumulator")
- A rather inflexible choice of investment.
However, indexed universal life insurances have 2 upsides:
- They allow tax-free loans.
- They have a floor rate, i.e. a guaranteed minimum returns on investment (e.g., 0%/year in the brochure for the Nationwide YourLife Indexed UL Accumulator)
Factoring these downsides and upsides, and perhaps others that I might have missed, are indexed universal life insurances of any use from a tax mitigation standpoint compared to a regular investment account, or they always a non-optimal choice?
I'm quite confident that the cap rate combined with the absence of dividends defeats the floor rate on average by a large margin (= a regular investment account yields a higher return on average), but I wonder whether the possibility of tax-free loans make indexed universal life insurances more attractive than a regular investment account.