How to Use an Indexed Universal Life (IUL) Policy for Your Child While Retaining Financial Access

Introduction

As parents or grandparents, we often look for ways to ensure a secure financial future for our children while also addressing our own financial needs. An Indexed Universal Life (IUL) insurance policy can serve as a powerful financial planning tool, allowing aging parents to provide tax-advantaged wealth accumulation, life insurance protection, and flexible access to cash value for both themselves and their child.

In this article, we’ll explore how structuring an IUL on a child can serve as both a financial safety net for aging parents and a long-term legacy-building strategy for future generations.

How an IUL on a Child Works

An IUL policy on a child is a permanent life insurance policy that builds cash value based on stock market index performance without direct market exposure. The parents or grandparents (who own the policy) can structure it in a way that allows access to the cash value if needed while setting up the child for a solid financial foundation.

Key Benefits of an IUL for a Child:

✅ Tax-Free Growth – Cash value accumulates tax-deferred and can be withdrawn tax-free under proper structuring.

✅ Indexing Growth Strategy – The policy’s cash value growth is tied to a market index of your choice, offering uncapped growth potential while protecting against losses. This allows policyholders to benefit from market upswings without the risks of direct market exposure.

✅ Market Protection – Unlike traditional investments, the cash value has a 0% floor, meaning it won’t lose value due to market downturns.

✅ Flexible Access – The policy’s cash value can be accessed by the parent or grandparent through policy loans, which don’t trigger taxes.

✅ Legacy Planning – If not needed by the parents, the policy seamlessly transfers to the child, giving them a powerful financial asset.

✅ Long-Term Coverage – The child benefits from lifetime insurance coverage with lower premiums due to their young age.

Structuring the IUL for Parental Access

To ensure that aging parents can access the cash value if needed while keeping the policy as a legacy tool for the child, proper structuring is critical. Here’s how it can be done:

1. Setting Up the Ownership & Beneficiary Designation

• Policy Owner: The parents (or grandparents) should be the initial owners of the policy. This allows them to control access to the cash value.

• Insured: The child will be the insured individual, ensuring low-cost premiums and long-term cash value accumulation.

• Beneficiary: If structured properly, the parent(s) or a trust can be the primary beneficiary, ensuring that the funds remain available if needed before passing to the child.

2. Using a Trust for Enhanced Protection

For long-term estate planning and asset protection, many families choose to place the policy in a trust, which we help facilitate.

• A revocable or irrevocable life insurance trust (ILIT) can hold the policy, ensuring proper management of funds and tax advantages.

• This setup protects the cash value from creditors and ensures a smooth transition of wealth.

• If structured in a trust, aging parents can be the trustees and manage distributions of the cash value during their lifetime while ensuring it ultimately benefits the child.

3. Accessing the Cash Value While Alive

If the parents need funds for retirement, medical expenses, or other financial needs, they can borrow from the IUL’s cash value tax-free via a policy loan.

✅ No Credit Check or Bank Approval – The policyholder simply requests a loan from the insurance company.
✅ No Repayment Required – The loan can be repaid, or it can simply be deducted from the total cash value.
✅ Remains Tax-Free – Since it’s structured as a loan, there are no taxes owed as long as the policy remains active.

4. Leaving a Legacy for the Child

If the parents do not need to access the cash value, the policy can seamlessly transfer to the child, providing them with:

• A fully-funded life insurance policy for their lifetime.

• A tax-free asset that can be used for their future needs (education, home purchase, business investment, etc.).

• A generational wealth tool that they can pass on to their own children.

Example Scenario: How It Works in Practice

John and Mary, both in their late 50s, want to ensure a financial legacy for their 10-year-old grandson, Alex. They also want to have the option to access the funds in case of an emergency.

1️⃣ They set up an IUL policy on Alex and designate themselves as the owners and trustees of a life insurance trust.
2️⃣ They contribute $10,000 per year to the policy, which grows tax-free.
3️⃣ Over time, the cash value accumulates to over $200,000 by the time Alex is 30 years old.
4️⃣ If John and Mary need funds, they can take tax-free loans from the policy.
5️⃣ If they never need the money, Alex will inherit a fully-funded IUL policy, giving him financial security for life.

Who Should Consider This Strategy?

This setup is ideal for:

✅ Parents or grandparents looking to leave a financial legacy for their children.
✅ Families who want to retain access to funds while alive but ensure long-term wealth for their heirs.
✅ High-net-worth individuals who want to use tax-advantaged wealth transfer strategies.
✅ Anyone who wants to protect their savings from market volatility while securing permanent life insurance for their child.

How to Set Up an IUL for Your Child

Setting up an IUL policy for a child requires careful planning to ensure maximum benefits. We specialize in structuring these policies and can help you:

✔ Choose the right insurance carrier for your needs.
✔ Set up a trust (if needed) to protect the asset.
✔ Structure the policy for tax advantages and liquidity.
✔ Ensure that you have access to the cash value when needed.
✔ Plan for a smooth transfer of wealth to your child.

📅 Schedule Your Free Consultation Today!

We help families structure Indexed Universal Life policies and trust-based strategies to maximize wealth and financial security. We never charge you a dime for our services—we only work to find the best opportunities to meet your financial goals.

💡 Interested in setting up an IUL for your child? Email adam@adaptexec.com today for a free, no-obligation consultation!

Final Thoughts

An IUL on a child is an innovative financial strategy that allows parents and grandparents to access tax-free funds if needed while securing a lifetime financial asset for their heirs. Whether you need a safety net for your retirement or a legacy-building tool, an IUL policy can be a cornerstone of your financial plan.

If you want to explore how an IUL strategy can work for your family, contact us today for a free consultation and take the first step toward building generational wealth. Email adam@adaptexec.com to schedule your appointment today.