You may know that the “U” in GVUL stands for universal–an apt word to describe the flexibility group variable universal life insurance allows participants to adjust premiums and coverage amounts to suit their changing needs over time.
GVUL also can help employers adapt to the realities of a changing benefits landscape–such as an aging work force and increasing health care premiums–that are challenging them to find innovative benefits solutions.
GVUL can help employers meet the challenge since it can provide employees with a cost-effective tool for self-funding life insurance protection into retirement, using the program’s cash accumulation feature. Employers also are asking employees to take a more active role in saving for retirement. GVUL gives employees an additional, tax-efficient savings vehicle that they can use to supplement the qualified savings programs many employers offer.
The features of GVUL can be appealing to employees of different ages and at different life stages. Regardless of whether employees are 25 or 55, they can use GVUL to help reach a number of key financial goals, such as protecting their family, saving for retirement or creating a tax-efficient estate plan. While young families may look to GVUL only to provide life insurance coverage, once these families become established and household income rises, many are able to take advantage of GVUL’s tax-advantaged investment feature to help them save for the future.
For example, GVUL can help pre-retirees accumulate money for retirement, through convenient payroll deduction programs and on a tax-deferred basis, to help pay for future expenses such as long term care or health coverage premiums. Information about use of GVUL programs as a funding vehicle for post-retirement health care may be of great interest to pre-retirees who are concerned about future out-of-pocket health care costs, given the fact that some employers are reducing or eliminating retiree health care coverage.
Participants also can use their life insurance coverage as an estate planning tool to help them pass wealth on to their heirs. GVUL has an advantage over term life insurance for this purpose. Like term life, GVUL allows heirs to receive the death benefit income tax-free. But, in addition to the death benefit, GVUL allows heirs to receive any accumulated cash value within the program income tax-free. The current tax code allows participants to keep money in their GVUL program since withdrawals are not required to begin at age 70.5 as they are with many qualified savings programs.
Let’s look at an example of how GVUL potentially can enhance the death benefit an individual passes to her heirs. Let’s assume that Jane, a 55-year-old woman, has worked hard and has achieved financial success. She already has educated her children and has adequate retirement savings. Now, she wants to ensure that the estate she has accumulated is passed on to her children, as tax efficiently as possible.
Traditionally, one of the ways Jane could accomplish this is through life insurance coverage. However, since she has GVUL coverage through her employer, she has an enhanced tool to help her maximize this goal. In this example she has $1 million of GVUL coverage. If she were to take full advantage of her GVUL program’s investment feature for the 10 years she has before retiring at age 65, she would be allowed to invest about $60,000 per year into her program, given current Internal Revenue Service rules.
This example assumes an Option B or increasing death benefit, a $3.50 monthly carrier administration fee, and a 2.25% premium load used to cover state premium taxes.
Investment returns are not guaranteed. Investing within a life insurance program has certain expenses and fees as well as the potential of losing the original investment.
But, if Jane’s policy generated an 8% annual net investment return, at age 80, Jane would have accumulated an estimated death benefit of $3.354 million that, under today’s rules, could be passed to her heirs free of income taxes.
Jane also might be able to avoid estate taxes, if a tax attorney helps her put her GVUL coverage inside a trust.
Graham Cox is vice president, life products management, MetLife, New York. He can be reached email@example.com.
Employees can use GVUL to:
==Protect against the risk of death.
==Save for general retirement expenses.
==Prepare for post-retirement health insurance and long term care insurance premiums.
==Reduce estate taxes.