Global Atlantic just opened up their life insurance policies for owners of cannabis-related businesses.
This is fantastic news because one of the best-kept secrets in tax-free retirement planning is funding your golden years through an indexed universal life policy or IUL.
What Makes The Cannabis Industry Different?
The insurance industry holds strong ideas about change – that it should be met with extreme caution.
When states first started legalizing medical marijuana and eventually recreational cannabis, insurance companies refused to insure business owners. Whatever excuse they gave, it was an instant decline.
Slowly, they’re starting to change their minds on term life insurance for employees, but getting key man or business coverage for business owners is difficult.
This will eventually change, but right now business owners are in an awkward position.
Tax Options for Retirement
Typically, you have three types of tax situations for retirement accounts – with their common examples.
- Taxable – investment accounts, bank accounts
- Tax-Deferred – 401(k)/IRA/SEP
- Tax-Exempt – Roth IRA
Hopefully, your business is bringing in too much money to qualify you for a Roth IRA. A 401(k) can be tricky for cannabis business owners to set up with the current federal legal situation. Then taxable accounts are, well, taxed.
This is where an IUL creates a massive advantage for never outliving your wealth.
You don’t pay taxes.
Technically, withdrawing cash is a loan. You don’t pay taxes on loans. Which means that the expenses for an IUL versus other retirement opens are significantly lower. With any of the other three options, you pay the account expenses (usually around 1.5% per year) plus taxes.
After expenses, taxes, and retirement withdrawals, other accounts quickly start nosediving toward $0. Your IUL keeps growing.
Uncommon Solutions for High Net Worth Entrepreneurs
Most retirement advice is for the average person. That’s how you sell the most books, classes, seminars, planning packages, etc. Volume sales.
But people with high net worth – particularly business owners – have a tax problem rather than a retirement savings problem.
We aren’t even talking about people making millions a year. Most retirement advice is for people making $30k a year. If you’re making over $60k, you’re an exception. This strategy applies to you.
Most retirement options will still have a tax component to them, often called tax-deferred plans.
But what wealthy people are doing to prolong their retirement accounts and (legally) avoid sharing a huge chunk with Uncle Sam are taking out indexed universal life (IUL) policies.
These are tricky.
Most insurance agents have no idea what to do when you say you want an IUL. So they do what they’ve always done and suggest you get the most life insurance you can afford for the smallest premium.
That makes sense if you’re looking for a life insurance policy. But this is a retirement strategy, the life insurance just has to be there to make the SEC happy.
You want the absolute lowest amount of life insurance for the largest premium.
Hear me out.
How an IUL Works to Fund Your Retirement
As you pay your premiums for an IUL, you accumulate the cash value portion of the insurance policy. It’s permanent life insurance, so it never expires.
The cash value grows tied to a stock market index. But here’s the kicker – there are floors. You can never lose money on your cash value. If the stock market tanks, your cash value is safe. You don’t lose a penny.
To balance the floor, most companies also put in a ceiling – usually around 14%. So if the stock market has an exceptional year and grows 17%, your cash value still gets 14% growth.
Also, it’s compounding.
The cash value grows, never sinking. It’s like Warren Buffet’s advice, “don’t lose money.”
At any point, you can borrow against your accumulated cash value. You don’t pay any taxes since it’s a loan. The collateral is your death benefit, which grows along with your cash value.
When you pass on, anything left goes to your beneficiaries. You never need to repay this loan from the insurance company.
Plus, remember the increasingly popular 4% rule for perpetual income? If you plan carefully with your other retirement investments, you can effortlessly live off this in perpetuity.
Common IUL Myths
Indexed universal life insurance policies are not your standard life insurance. They are legally used for life insurance purposes, but clever financial whizzes can use them to their advantage during their life.
They’re complex policies that must be tailored to each individual by someone with experience in IULs. Otherwise, you risk losing money in a policy that isn’t doing what you need.
Remember, there isn’t an insurance agent degree from an accredited university. Most expertise is learned independently. To pursue this strategy, you must find someone who has done this before many, many times. Ask.
FYI … Yes, the owner of Marcan Insurance owns an IUL and knows how to design it for your maximum benefit.
Myth 1: IULs are extremely risky
Indexed universal life policies carry some risk. But they have a floor which deflects any damage to your accounts from market bubbles or crashes.
The primary risk is not shopping around for an agent. A poorly designed IUL policy can be a liability to you. They take
Ask any agent you’re considering what type of policies they own. If they understand indexed universal life policies, they probably own one.
Considering all types of permanent life insurance, if you want high-risk policies, look into variable universal life. It makes IULs look like storing gold in your safety deposit box.
Myth 2: It’s better to put money directly into the stock market.
If you do even a basic google search of indexed universal life insurance, you will find many bloggers hating on the product.
They’ll mention things like they don’t count dividends or they have participation limits. (Although, you’ll notice they don’t say they also have floors when they talk about the growth ceilings.)
Here’s the thing. Having a well-rounded portfolio is vital to securing your wealth. An IUL is one part.
Your IUL will never lose money because it has a floor. Even when the stock market inevitably tanks, it won’t take all your built-up wealth with it.
The other huge benefit is when you withdraw money from a traditional portfolio to use, you don’t get
In an IUL, your cash value grows based on the total value – not the total amount minus your loan. Even the money you withdraw still contributes to the growth of your account.
Myth 3: IULs are a get-rich-quick strategy.
If only. But no. IULs are a long term game. It’ll take several years before you start seeing the sort of growth that will allow you to live comfortably in your retirement.
The cash value in an IUL depends on the magic of compound interest. That takes time to accumulate.
Global Atlantic’s IUL
Global Atlantic has a few IUL options, but the best for business owners is Lifetime Builder Elite. It’s a growth-focused account to assist families focused on wealth building for their financial security.
Lifetime Builder Elite focuses more on cash growth while covering your family for life insurance. It’s the opposite of other types of life insurance, like term, that focuses primarily on the face amounts.
Statistically, you won’t need to use your life insurance until you are 80 or older. So turning it into a retirement vehicle works well for many business owners.
You can choose from 3 different benefit options:
- Level Death Benefit
- Increasing Death Benefit
- Return of Premium
The second option (increasing death benefit) is the growth option. You’ll always pay your insurance premiums, but the increased death benefit (aka face amount) increases the loan available for funding your retirement.
The face amount is the pool from which you can draw cash. The bigger the pool, the more it compounds. The more it compounds, the more secure you are.
Lifetime Builder Elite also has several options for taking out the loans. These are best discussed with your insurance agent and financial planner.
One of the features we love about this is the guaranteed account value enhancement. It’s the life insurance equivalent of a preferred customer. Starting in year six, you get an additional 1% interest on your account value every year for life.
Finally, rather than many companies offering a floor of 0% growth, Global Atlantic has a floor of 2%.
You can customize your policy further with riders. These will depend on your family situation as well as desires for what you want your life insurance to do.
- Wellness for life – offers discounts for regular doctor visits and maintaining a healthy weight
- Spousal insurance rider – covers your spouse for a fixed amount
- Child rider – covers children for a set amount
- Critical illness rider – pays out a portion of the face amount upon diagnosis of certain chronic, critical, or terminal illnesses
- Disability insurance rider – helps you maintain your life insurance if you cannot work
- Lapse protection – prevents your policy accidentally lapsing if you borrow too much
Even though Global Atlantic is opening up this product to cannabis business owners, the business cannot own the policy.
Second, the company also cannot be the beneficiary of the policy. While most people will choose their spouse, kids, or estate, it’s an important point to note.
If you’re looking for key man insurance or buy-sell to shore up your business, there are better options.
Indexed universal life insurance isn’t for everyone, but as a business owner, it’s a good idea to fund your retirement. Your business is your nest egg, whether you’re looking to grow and sell or hold on to it until you’re ready to retire.
IULs offer a unique way to ensure that you never outlive your money – regardless of what life might throw at you.
Global Atlantic is one of the first companies to open up an IUL to marijuana business owners.
How Marcan Insurance Can Help
We focus on helping people who have careers in the cannabis industry find life insurance. It’s an industry reluctant to change so we keep track.
Rather than face repeated application rejections over your career, we help people get their life insurance done right the first time. Particularly for business owners, life insurance can help achieve long-term financial goals rather than just be a safeguard for your family. Although that’s important too.
Give us a call at (888) 987-8447 to get some sample numbers of what your retirement could look like. We’re happy to help, and there is never any obligation.