Cutter Family Finances: Protecting What's Important


It does not matter what our age is, our income level, whether we are married, single, divorced, Irish, Italian, Catholic, Jewish, rich or poor we all have three main concerns when it comes to protecting our families’ financial well-being and long-term success. First, is dying too soon. Second, is getting sick and being unable to pay our bills, and third, is outliving our retirement savings.

While we can employ three or four different strategies to help protect us from all three of these financial threats, today I want to talk about one of those solutions: Indexed Universal Life Insurance, or IUL.

Last week, I talked about IUL with a very nice couple that was referred to me from Sandwich. Let’s call them Bill and Cathy. Bill and Cathy are 42 and 40 respectively with two kids, ages 4 and 6. Both Bill and Cathy work, but Bill is the primary breadwinner. They each contribute to their respective 401(k)s and have sufficient savings. Nevertheless, they are concerned about the same three financial threats I mentioned above and came to me to seek some objective financial advice.

After performing a full analysis of their financial situation, I suggested to Bill and Cathy that an IUL policy might be an appropriate solution for their needs. An IUL policy would provide multiple layers of protection, to offset the disastrous effects of these three potential financial crises. Let me explain why.

Usually, when one spouse dies young, the surviving spouse must replace the other’s income and needs help paying off any existing debt, such as a mortgage. If structured properly, an IUL policy will pay a tax-free death benefit to the surviving spouse in such a situation, thereby allowing them the ability to meet those needs.


As mentioned above, the second financial concern that many people have is getting sick with either a chronic or critical illness, and being unable to pay bills. Certain IUL policies contain living benefit riders, which allow a policyholder to tap into their “death” benefit while alive. This is extremely valuable because the money can be used to replace income in the event the policyholder is out of work due to such an illness. The benefit can be used to pay medical bills or any other household bills until income can be earned again.

The third concern, outliving retirement savings, can be even more of a concern when possible future tax increases are considered. I asked Bill and Cathy if they think taxes are going up in the future. They nodded their heads yes. I asked if they agree that we are in one of the most financially volatile periods in our history. They agreed. I asked if they would rather pay taxes now (while tax rates are historically low), rather than later (when they are higher), participate in market gains, and avoid the downturns. Bill answered, “Who wouldn’t?”

IUL harnesses the power of compounding interest and tax-free growth to build cash value over the life of an insured. Funds are contributed to an IUL policy after tax, but that money, the cash value, grows tax-free. This cash value can be accessed during retirement years tax-free, to produce an income stream that, if structured properly, will never run out of income.

Additionally, IUL comes equipped with downside risk protection, removing the significant threat of stock market volatility. I explained to Bill and Cathy that they will never see the cash value of an IUL policy decrease due to a downturn in the market.

Here is a scenario that I used as an example for them. Let’s assume that that Bill and Cathy are saving about $12,000 per year in their IUL policy (that is, $12,000 is contributed yearly over and above the minimum established premium necessary for a specified death benefit). If the market increases by 20 percent this year, they may only get 14 percent. Their cash value will be credited the 14 percent gain and then it locks in. In year two, even if the market crashes like it did in 2008, their cash value will not be impacted by the negative volatility in the market. In essence, they do not lose in order to gain in future years. So after 25 to 30 years of continued contributions, participating in market growth and avoiding the negative years, Bill and Cathy will be able to retire and draw an annual income stream for the rest of their lives . . . tax-free.

Unfortunately, millions of families fall victim to one of these three major financial threats, leaving their financial lives in ruin. Understanding the availability of strategies such as Indexed Universal Life Insurance can offer a family peace of mind by securing their financial future. A point of caution to our Cutter Family Finance readers—if you decide to use this kind of strategy, please seek a professional who understands how to structure an IUL policy properly. I have seen too many instances when such strategies are not structured properly, thereby removing all the tax-free withdrawal benefits and causing significant unwanted tax consequences. The strategy works; let’s just make sure it works for you.

Last week, we structured an IUL policy correctly for Bill and Cathy, to be used as a financial strategy, which will help protect them from all three major financial threats. What’s better than that?
Be vigilant and stay alert, because you deserve more.

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Jeffrey Cutter, CPA, PFS is the managing partner from Cutter Financial Group, LLC (, which provides private wealth and investment management through low risk, low volatility successful financial solutions; securing peace of mind. He can be reached at

Investment advice is offered by Horter Investment Management, LLC, a Registered Investment Adviser. Insurance and annuity products are sold separately through Cutter Financial Group, LLC. Securities transactions for Horter Investment Management clients are placed through Pershing Advisor Solutions, Trust Company of America, Jefferson National Monument Advisor, Fidelity, Security Benefit Life, and Wells Fargo Bank, N.A.


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