How Old is Too Old to Start an IUL?


How Old is Too Old to Start an IUL?

I’m Aju John, a financial professional and retirement planning specialist. My goal is to help people save money for retirement by making informed financial decisions.

Many people mistakenly believe that Indexed Universal Life (IUL) insurance becomes more expensive as you age. However, when structured correctly and funded properly, an IUL can actually become cheaper as you get older. Most insurance companies allow you to take out an IUL policy up to age 80, and even if you're unhealthy, you can still qualify by adjusting the death benefit under TEFRA (Tax Equity and Fiscal Responsibility Act) and DEFRA (Deficit Reduction Act) guidelines.

Does an IUL Cost More if You’re Older?
No! Here’s why:
While the cost per thousand dollars of insurance does increase with age, the amount of insurance required under TEFRA and DEFRA decreases if you're using IUL for living benefits rather than focusing on the death benefit. This means:
The older you are, the less insurance is required.
If you are unhealthy, you can further reduce the death benefit and still get the same rate of return.
On average, IUL policies I structure earn 11% gross and 10% net, regardless of the policyholder's age or health.


Understanding How IUL Costs Work

Most people get IUL for living benefits—not for maximizing death benefits. The goal is to put in the maximum allowable funds under IRS guidelines while keeping the insurance costs as low as possible.
This is what makes an IUL a powerful wealth-building tool compared to traditional investment vehicles like IRAs, 401(k)s, or the stock market.

Why IUL is a Superior Capital Accumulation Tool

An IUL protects against the biggest financial risks retirees face, such as:
1. Taxes – Tax-free growth and withdrawals.
2. Inflation – Returns are linked to inflation-sensitive indexes, helping to outpace rising costs.
3. Market Volatility – Principal is protected from market downturns.

With a properly structured IUL:
Your money grows tax-free under IRS 72(e).
You can access tax-free income under IRC 7702.
You comply with TEFRA, DEFRA, and TAMRA (Technical and Miscellaneous Revenue Act of 1988), ensuring your policy remains tax-advantaged.

Does an Older Policyholder Pay Higher Costs?

The short answer: No.
A 60-year-old male who funds an IUL with $500,000 may need only $1 million in insurance coverage.
A 20-year-old male funding the same amount may require $5 million in coverage due to TEFRA and DEFRA regulations.
The older the policyholder, the lower the amount of required insurance, making costs more efficient.


Real-World Example: A 78-Year-Old with Health Issues
A 78-year-old with:
Three blocked arteries (treated with angioplasty),
Adult-onset diabetes (controlled by diet/exercise),
Past prostate cancer (PSA levels were stable).
Most insurance companies would decline or rate him poorly. However, we found a company that approved him at Table D (100% higher insurance cost). Instead of taking out a $1 million policy (which would have been required if he were healthier), we squeezed down the death benefit to $700,000.
He contributed $500,000.
He immediately started pulling out $50,000 per year tax-free.
His policy still performed at 11% gross and 10% net, just like a healthy 20-year-old.
What If You’re Uninsurable?

Even if an individual is completely uninsurable, there are still options:
You can own an IUL on someone else (spouse, child, business partner).
The policy owner gets all tax-free growth and income.
This is how banks (BOLI) and corporations (COLI) leverage IUL to grow wealth.

Final Takeaway: IUL Gets More Efficient Over Time

If structured correctly:

1. IUL costs do not increase as you age—they decrease because the net amount at risk for the insurer declines.
2. Even people with health issues can qualify by reducing the required death benefit.
3. An IUL can be started up to age 80 (sometimes even 81 with backdating).
4. Compared to a taxable 401(k) or IRA, an IUL provides more liquidity, safety, and higher after-tax returns.
If you're serious about maximizing retirement income, minimizing taxes, and protecting against inflation and market losses, a properly structured, max-funded IUL is the answer.

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