Contents [Hide]

About

In the FIRE series, we’ve already covered a lot of “how to save money” and “how to invest” topics:

The core of all of these topics is the same: how to save money, invest it, and eventually let your assets support your life. But there is another very important question on the road to financial independence that often gets overlooked:

If the main income earner in the family suddenly has a serious problem before financial independence, what happens to the whole plan?

That is where insurance fits into financial independence planning. Insurance is not meant to make us rich, and it is not a replacement for investment accounts. Its role is:

Before financial independence, protect household cash flow; after assets have accumulated, manage some big risks you cannot afford on your own.

Today’s article mainly covers two common types of life insurance:

  • Term Life Insurance, 定期寿险
  • IUL, Indexed Universal Life, 指数型万能寿险

These two products are often compared side by side, but I think the more accurate way to understand them is:

  • Term Life is a household income protection tool for before financial independence.
  • IUL is an advanced permanent life insurance tool that only a small number of high-income households may want to study after they have used their core accounts well.

In other words, ordinary families should not start by asking, “Should I buy IUL?” They should first ask:

Do I have a need for life insurance? If so, should I use Term Life first to cover the most critical family risks?

Once your basic protection and core investment accounts are in place, then looking at a more complex tool like IUL in that order makes more sense. Note: This article is for educational purposes only and does not constitute insurance, investment, tax, or legal advice. Insurance products vary by state, company, age, health condition, and policy design, so before buying, you should compare carefully based on your own situation. Some of the basic concepts in this article refer to materials such as NAIC Life Insurance, NAIC Life Insurance Illustrations, IRS Life Insurance Proceeds, and IRS Estate and Gift Tax.

Key Points

  • Financial independence planning is not just about investment returns; it also requires risk management.
  • The essence of insurance is using a relatively small amount of money to transfer a big risk that a household cannot bear on its own. Put simply, it is a form of leverage.
  • Before financial independence, for many families the biggest asset is not the brokerage account, but decades of future wage income.
  • If someone depends on your income, such as a spouse, children, parents, or if you have a mortgage, then Term Life is usually the life insurance you should understand first.
  • The role of Term Life is to buy higher coverage at a lower cost during the most vulnerable stage of family life.
  • IUL is permanent life insurance with cash value; it is not a regular investment account, and it is not the same as directly buying an index fund.
  • The main advantages of IUL include: long-term death benefit coverage, cash value, some downside protection through indexed interest crediting, policy loans, living benefits, liquidity for legacy planning, and supplemental planning value for a small number of high-income households.
  • For many Chinese families, financial independence does not only mean having enough for themselves. It may also include a down payment for a child’s home, education funding, startup capital for a business, or even leaving the next generation their first nest egg. That is why legacy planning becomes an important part of IUL discussions.
  • If your goal is simply to invest for growth, 401(k), HSA, IRA / Backdoor Roth, Mega Backdoor Roth, and Taxable Brokerage usually should come before IUL.

The Essence of Insurance: Using Small Money to Transfer Big Risk

Before discussing Term Life and IUL, let’s first make the most basic logic of insurance clear. The essence of insurance is not “highest investment returns,” and it is not “you will definitely make money if you buy it.” The real value of insurance is:

Using a relatively small amount of money to transfer a big risk that a household cannot bear on its own.

This is really a form of leverage. For example, a young family may not have accumulated enough assets yet, but they already have a spouse, children, and a mortgage. That family may only need to pay a few hundred to one or two thousand dollars in premiums per year, yet it can obtain $1M or even $2M of death benefit coverage. If nothing happens, that is of course the best outcome, and the premium is essentially the cost of buying a period of peace of mind. But if the main income earner in the family tragically dies, that death benefit can immediately become a buffer for the household, helping cover the mortgage, children’s living expenses, education funding, and the time needed for the surviving spouse to reorganize life. So the core of insurance is not “whether you eventually get the premium back,” but:

Using insurance leverage to protect the entire financial independence plan when the family is most vulnerable and assets have not yet been built up.

Before Financial Independence, the Biggest Asset Is Future Income

Many young families look at their balance sheet and feel like they do not have many assets. But if you can still work for another 20–30 years, your future wage income is actually a very large asset. For example, if someone earns $150,000 a year and can still work for 25 more years, ignoring raises, total future income would be $3.75M. Of course, that is not cash sitting in your account right now, but it is the foundation for the family’s future savings, investing, mortgage payments, child-rearing, and path to financial independence. That is the income Term Life is meant to protect. If future income suddenly disappears, the insurance payout can give the family time and keep the whole household plan from collapsing immediately.

After Financial Independence, Insurance Needs Change

Insurance needs are not the same for life. If a family already has $3M, $5M, or even more in investment assets, has very little mortgage debt, and the children are grown, then even if the main income earner stops working, the family can still live off its assets. At that point, the need for life insurance as “income replacement” drops significantly. So for many ordinary families, the core stage for insurance is really:

The period when you are not yet financially independent, but already have family responsibilities.

That is also why Term Life is a good fit for most young families: it provides coverage for the 10, 20, or 30 years when protection is needed most, at a relatively low cost. As assets gradually accumulate, the family can slowly self-insure, meaning it can use its own assets to bear the risk.

Term Life: The Purest Household Protection Leverage

Term Life Insurance is usually called 定期寿险 in Chinese. Its logic is very simple:

  • You choose a coverage period, such as 10 years, 20 years, or 30 years.
  • You choose a coverage amount, such as $500k, $1M, or $2M.
  • If you die during the coverage period, the insurance company pays the death benefit to the beneficiary.
  • If you are still alive when the coverage period ends, the policy usually ends.

Term Life has these characteristics:

Cheap, high coverage, and simple structure.

It has no cash value and is not suitable for investing. But precisely because it is so simple, it is the purest form of insurance leverage. You pay a relatively small premium and get a relatively large death benefit, which protects the risk your family can least afford to bear.

Who Should Consider Term Life?

If you fit any of the following situations, you should seriously consider Term Life:

  • You have a spouse who depends on your income.
  • You have children, especially if they are still young.
  • Have a mortgage.
  • The household has only one primary source of income.
  • Your parents or other family members rely on you financially.
  • You have significant debt and do not want to leave it to your family if something happens to you.
  • You are starting a business, and your family’s cash flow depends on you.
  • You have not accumulated enough assets yet to self-insure.

    • One-line summary:

    If someone depends on your income and you are not yet financially independent, you should consider Term Life.

    Who may not need Term Life very much?

    Not everyone needs life insurance. If you fit the situations below, Term Life may not be a top priority:

    • You are single, have no children, and no one depends on your income.
    • You have no mortgage or joint debt.
    • Your parents, spouse, and children do not need financial support from you.
    • You are already financially independent, and your assets are enough to cover your family’s future living expenses.
    • Your children are already adults, your mortgage is small, and the family protection gap is not large.

    More insurance is not always better. The point is to cover real risks, not to buy insurance just for the sake of buying it.

    How much Term Life coverage should you buy?

    There is no single answer for Term Life coverage, but you can estimate it from several angles:

    Factor Explanation
    Income replacement If you were gone, how many years of income would your family need?
    Mortgage Do you want the death benefit to cover the remaining mortgage?
    Children’s education Do you want to cover future college costs for your children?
    Family debt Car loans, student loans, credit card debt, business debt, and more
    Spouse buffer period Do you need to give your spouse a few years to rework work and life plans?
    Existing assets How much can cash, investment accounts, and company insurance cover?

    A common rough rule of thumb is 10–15 times your annual income, but that is only a starting point. For example, if you earn $150k a year and have a mortgage and children, $1M–$2M of coverage could all be reasonable. But if you already have a $2M investment account, very little mortgage debt, and children who are almost adults, the coverage you need may be much lower.

    How long should you buy Term Life for?

    Common terms are 10 years, 20 years, and 30 years. Some insurers may also offer longer or shorter terms, depending on the company, your age, health, and the product.

    Term Best for
    10 years Short-term debt, children close to adulthood, nearing financial independence
    20 years Children are already born, and you want coverage through college and the years around it
    30 years Recently married, recently bought a home, or just had children and need long-term protection

    From a financial independence perspective, the term can match your “family responsibility period.” For example, if your child was just born, you may want coverage until the child becomes an adult or graduates from college. If you just took out a 30-year mortgage, you may want coverage through the main mortgage period. If you expect to reach financial independence within 15 years, you may not need a very long term. The goal of Term Life is not to protect you for your entire life, but to cover the period before you have accumulated enough assets.

    Is employer-provided life insurance enough?

    Many employers offer group life insurance, such as 1x or 2x annual salary. That is certainly helpful, but there are usually a few issues:

    • The coverage amount may not be enough.
    • It may end when you leave the company.
    • You may not be able to take it with you when you change jobs.
    • If your health worsens, buying a separate policy later may be more expensive or impossible.

    So employer coverage can be a supplement, but do not assume it is enough. If you have a spouse, children, and a mortgage, it is best to calculate the coverage gap separately.

    Pros and cons of Term Life

    Pros Cons
    Simple structure Usually no cash value when the coverage expires
    Premiums are relatively inexpensive It is not an investment account
    You can buy a high coverage amount at a relatively low cost If you still need coverage later, renewing may be very expensive
    Good for covering mortgages, children, and income responsibilities The term needs to be planned in advance
    Easy to compare quotes from different insurers Your health condition affects underwriting

    For most families that are not yet financially independent, Term Life is the most direct and easiest-to-understand type of life insurance.

    IUL: Beyond insurance leverage, adding cash value and long-term planning features

    Basic concept

    Once you understand the leverage of insurance, it becomes easier to look at IUL. IUL stands for Indexed Universal Life. It is usually called indexed universal life insurance in Chinese. At its core, it is still life insurance with a death benefit. But unlike Term Life, IUL is a type of permanent life insurance. In addition to the death benefit, it also has a cash value. So IUL can be understood as:

    Permanent life insurance + cash value account + index-linked crediting rules + policy loan feature.

    Note that IUL is not the same as buying VOO directly, and it is not the same as buying an S&P 500 index fund directly. It only links the way cash value is credited to the performance of certain market indexes. The insurer will credit interest to your cash value according to the policy rules. So IUL should not be simply understood as a “life-insurance version of an index fund.” A more accurate way to think about it is:

    IUL is permanent life insurance with cash value, suitable for a small group of people who have a long-term life insurance need, stable cash flow, and have already made fairly full use of their basic accounts.

    Who it may fit

    IUL is not completely off the table, but it is better suited to specific people.

    Who it may fit Why
    People who truly need long-term or lifetime life insurance IUL is still life insurance at its core, not a normal investment account
    People with very stable cash flow IUL usually requires long-term premium payments and cannot easily be interrupted
    People who have already made fairly full use of basic tax-advantaged accounts 401(k), HSA, and IRA / Backdoor Roth should usually come first
    People who have already looked into Mega Backdoor Roth if it is available This is a more direct and transparent Roth path
    People who already have enough Taxable Brokerage assets They will not lock all liquidity inside a policy
    People with legacy or estate planning needs Permanent life insurance may become part of the overall plan
    People willing to maintain the policy long term IUL is not something you buy and forget; it needs ongoing review

    People who should be cautious about considering IUL too early

    If you fit the situations below, I think you should be very cautious:

    • You do not have an emergency fund yet.
    • You still have credit card debt or other high-interest debt.
    • You are not yet getting the full 401(k) match.
    • You are eligible for an HSA but have not contributed to it.
    • You have not looked into IRA / Backdoor Roth yet.
    • Your cash flow is unstable.
    • You do not have a real life insurance need and just want an investment.
    • You are unmarried, have no children, and no one depends on your income.
    • You may need a lot of cash in the near term for a home purchase, a business, or a move.
    • You do not understand fees, loans, and surrender costs.

    To put it more directly:

    If you still do not understand 401(k), HSA, IRA, and Taxable Brokerage, do not rush into treating IUL as a shortcut to financial independence.

    A few major advantages of IUL

    People consider IUL because it does have some features.

    1. Long-term or even lifetime death benefit

    Term Life usually only covers 10 years, 20 years, or 30 years. If designed properly, premiums are paid on time, and the policy does not lapse, IUL can provide a long-term or even lifetime death benefit. That has value for people who need long-term life insurance. For example:

    • You want to leave your family a long-term protection benefit.
    • You have legacy needs.
    • You want to keep some death benefit after retirement.
    • You have estate planning or estate liquidity needs.

    But note that IUL is not something that is automatically guaranteed to last for life once you buy it. If premiums are too low, loans are too large, or the cash value is not enough to support the costs, the policy can still lapse.

    2. Cash value

    Term Life usually has no cash value. IUL, on the other hand, does have cash value. A portion of the premiums you pay goes toward insurance costs and fees, and another portion goes into the cash value account. Over time, if the policy is designed well, market conditions cooperate, and fees are controlled properly, the cash value may gradually grow. This is one of the biggest differences between IUL and Term Life. But everyone should remember:
    Having cash value does not mean there is no cost, and it does not mean it is definitely better than investing on your own.

    Growth in cash value must still subtract insurance costs and policy fees, and it is also constrained by the index-crediting rules.

    3. Index crediting usually offers some downside protection

    A common IUL design ties the cash value to the performance of an index, such as the S&P 500. Many IUL policies have a floor, meaning that when the index performs very poorly, the credited interest does not go negative. This is why IUL is often marketed as letting you “participate when the market goes up and be protected when the market goes down.” But this needs to be made clear:

    Having a floor on index crediting does not mean the policy cash value can never decline.

    Because even if the credited interest is 0%, policy fees and insurance costs are still deducted. So a more accurate way to say it is:

    The index-crediting portion of IUL usually has some downside protection, but the policy as a whole still has fees and long-term maintenance risk.

    4. Cash value can be accessed through policy loans

    Another selling point of IUL is the policy loan. If the policy has accumulated enough cash value, you may be able to borrow against it in the future and use the money. This feature has several appealing aspects:

    • You do not trigger capital gains the way you would if you sold stocks.
    • As long as the policy remains in force, the loan itself is usually not taxable income.
    • It can be part of a future cash flow strategy.

    But this is not free money. A policy loan is borrowing, not withdrawing. The loan accrues interest and affects both cash value and the death benefit. If the loan gets too large, or if market performance is poor, the policy may face lapse risk. So an IUL loan can be a valuable feature, but it should not be understood as “free tax-free retirement money.”

    5. It may include living benefits

    Many IUL policies include living benefits. For example, in cases of terminal illness, chronic illness, or critical illness, you may be able to access part of the death benefit early. This is indeed valuable for some families because it adds flexibility to the policy. But it is also important to note:

    Living benefits usually mean using the death benefit early, not getting a free extra long-term care or critical illness policy.

    If you use it early, the death benefit left for beneficiaries will usually be reduced accordingly. So it can serve as a supplemental feature, but it cannot simply replace standalone health insurance, long-term care insurance, or critical illness insurance.

    6. For Chinese American families, IUL also has estate-transfer meaning

    In the U.S., when people talk about financial freedom, the default goal is often:

    Will I have enough to spend after I retire?

    But for many Chinese American families, the goal of financial freedom is not only having enough for yourself until you pass away. It also includes:

    • Leaving a down payment for a child’s home.
    • Helping children reduce education and loan pressure.
    • Giving the next generation some initial capital.
    • Making sure family wealth does not start from zero every generation.

    So for these families, financial freedom naturally extends beyond retirement planning into estate planning. Insurance can be used for legacy planning for two main reasons: leverage and taxes. First, insurance provides leverage. If you want to leave your child $1M through a Taxable Brokerage account, you need to actually save up $1M over time, or grow it to $1M through long-term investing. Life insurance is different. By paying premiums over time, you can lock in a future death benefit in advance. As long as the policy stays in force, when the insured dies, the beneficiary receives a death benefit. So the logic of insurance-based legacy planning is not:

    The money I put in will definitely earn more than investing.

    It is:

    I use relatively controllable premiums to secure a fairly definite payout in the future.

    That is the leverage feature of insurance. Second, the tax treatment of life insurance death benefits is usually favorable. In general, a life insurance death benefit received by a beneficiary because the insured dies is usually not included in gross income. In other words, for the beneficiary, this money is usually not ordinary taxable income like wages, interest, or Traditional IRA distributions. The IRS also explains that life insurance death benefits are generally not included in gross income; however, if there is an interest component, the interest must be reported for tax purposes. This is very important for legacy planning.

    • If parents leave a Traditional IRA to their child, the child will usually need to consider income tax when withdrawing money later.
    • If parents leave a stock account to their child, there may be a step-up basis, but how and when to sell, and how the child manages it, still involve many variables.
    • By contrast, a life insurance death benefit is usually a cash payment sent directly to the named beneficiary, so it tends to be more liquid.

    So the value of life insurance in legacy planning is not just “leaving money,” but “leaving a relatively clear, liquid amount of money that is usually handled in a tax-friendly way.” Of course, you need to distinguish between income tax and estate tax. A life insurance death benefit generally has no federal income tax for the beneficiary, but that does not mean it never involves estate tax in every situation. For most families, the U.S. federal estate tax exemption is very high, so this is usually not the first concern. In 2026, the federal estate / gift tax basic exclusion amount is $15,000,000 / person, and the annual gift exclusion is $19,000 / recipient. But if a family’s net worth is already very high, or if the state has an estate tax / inheritance tax, then you need to further consider who owns the policy, how beneficiaries are arranged, and whether a trust is needed. That part already falls under estate planning and requires professional attorneys and tax advisors. This is also why IUL is more often discussed than Term when it comes to legacy planning. Term Life also has a death benefit, but it has a term. It is better suited to covering income risk before children become adults, before the mortgage is paid off, and before financial freedom is reached. IUL is permanent life insurance, designed to last long term or even for life. Therefore, if a family’s goal is not only “protect income until the children are adults,” but also to leave a death benefit to the next generation no matter when death occurs, then permanent life insurance like IUL enters the discussion. So you can think of it this way:

    • Term Life is better for solving family responsibilities over a fixed period of time.
    • IUL is better for discussing long-term protection, cash value, and legacy liquidity.

    But that does not mean IUL is right for everyone. If you only need coverage until your children are adults, Term may already be enough. If your 401(k), HSA, IRA, and Taxable Brokerage accounts are not being used well yet, IUL usually should not be a priority. If you truly have long-term life insurance needs, legacy needs, stable cash flow, and your foundational accounts are already being used reasonably well, then IUL is worth further study.

    7. For a small number of high-income families, it has supplemental planning value

    If a family has already made good use of:

    • 401 (k)
    • HSA
    • IRA / Backdoor Roth
    • Mega Backdoor Roth
    • Taxable Brokerage

    and still has stable cash flow, long-term life insurance needs, and legacy needs, then IUL can be further explored as a supplemental planning tool. But it should not be placed ahead of foundational accounts. For most people, IUL is not the first layer of retirement savings; it is a more advanced tool further down the line.

    Where Term and IUL fit in the financial freedom roadmap

    You can understand it with this framework:

    Stage Main task How insurance fits
    Just started working / single Build an emergency fund, pay off high-interest debt, get the 401 (k) match If no one depends on your income, life insurance is usually not a high priority
    Married / bought a home / have children Protect family cash flow and start investing seriously Term Life is usually very important to cover the mortgage, children, and income responsibilities
    Rapid asset accumulation phase 401(k), HSA, IRA, Backdoor Roth, Taxable Brokerage Continue maintaining Term coverage and gradually reduce the family protection gap
    Approaching financial independence Check whether assets are sufficient to cover long-term expenses Term needs may decline, and you can evaluate whether you still need to renew coverage
    Advanced planning for high earners / high-net-worth households Taxes, legacy planning, permanent life insurance, asset allocation If basic accounts are already being used well, you can further research IUL or other permanent life insurance
    Already financially independent Withdrawal strategy, tax management, estate planning Life insurance is more of a legacy, tax, and estate liquidity tool, rather than an income replacement tool

    Put simply:

    • Before financial independence, Term Life mainly protects future income.
    • After financial independence, life insurance is more of a legacy and estate planning tool.
    • If you are considering IUL, it usually belongs in advanced planning, not as a basic investing tool.

    A few concrete examples: how should different income and family situations think about this?

    I’ve covered a lot of principles above. Below are a few practical examples. Whether Term Life and IUL are appropriate depends on more than just income level. You also need to look at:

    • Whether anyone depends on your income.
    • Whether you have a mortgage, children, or debt.
    • Whether your existing assets can cover the family’s future living expenses.
    • Whether 401(k), HSA, IRA, and Taxable Brokerage are already being used fairly fully.
    • Whether cash flow is stable.
    • Whether you have long-term life insurance, legacy, or estate planning needs.

    Here are several common family situations you can roughly compare against.

    Example 1: High-income single, but no one depends on the income

    Suppose someone is 30 years old, earns $180k per year, is single, has no children, no mortgage, and no one depends on his income. In this situation, the top priority is usually not life insurance, but rather:

    • Building an emergency fund.
    • Getting the full 401(k) match.
    • Contributing to an HSA if eligible.
    • Maxing out the 401(k).
    • Researching IRA / Backdoor Roth IRA.
    • Putting extra money into a Taxable Brokerage account.

    That’s because if he passes away, there is no spouse, child, or family member depending on that income. The need for income replacement through life insurance is not very strong. In this case, Term Life is not completely off the table, but it usually is not a top priority. The same goes for IUL. If the only reason is, “I make a lot, and I want an investment vehicle,” then IUL generally should not be a first choice. Low-cost index funds and tax-advantaged accounts are usually more direct and transparent.

    Example 2: Married, no kids, mortgage, and a big income gap between spouses

    Suppose a married couple has a household income of $250k, with one spouse earning $200k and the other earning $50k. They just bought a house with a $700k mortgage and do not have children yet. In this case, you need to look at the mortgage and lifestyle. If the primary earner suddenly dies, can the other spouse independently handle the mortgage, living expenses, and future plans? If the answer is “not really,” then Term Life makes a lot of sense. This type of family may consider:

    • Buying a 20-year or 30-year Term Life policy for the main earner.
    • Setting coverage at least enough to cover part of the mortgage, several years of living expenses, and a buffer period for the spouse.
    • If they plan to have children in the future, they can also design the coverage amount to be more generous in advance.

    As for IUL, it usually is not the top priority yet. Unless the family has very stable cash flow, has already used basic retirement accounts fairly fully, and truly has long-term life insurance or legacy needs, it is simpler to start by using Term to solve the protection need.

    Example 3: Has children, has a mortgage, but assets are still not built up enough

    This is the most classic use case for Term Life. Suppose a family has a $300k income, two children ages 3 and 6, an $800k mortgage, and $300k in investment assets right now. Even though this family earns a good income, they are not yet financially independent. They still need wages going forward to:

    • Pay down the mortgage.
    • Raise the children.
    • Contribute to 529 plans.
    • Contribute to 401(k), HSA, and IRA.
    • Keep investing in index funds.

    If the primary earner suddenly dies, the whole plan would be severely disrupted. In this situation, Term Life is usually very worth considering. You can estimate coverage from these angles:

    • Cover the remaining mortgage.
    • Cover living expenses until the children are adults.
    • Cover part of college education costs.
    • Give the spouse a few years of breathing room.
    • Subtract existing investment assets and the company group life policy.

    For example, a family like this buying $1M-$2M of 20-year or 30-year Term Life could be within a reasonable range. Of course, the exact coverage amount should be calculated based on expenses, assets, mortgage balance, and the children’s ages. As for IUL, I think in most cases it is still not the first step. If this family has not yet maxed out 401(k), HSA, Backdoor Roth, and Taxable Brokerage, jumping straight to IUL is usually not the right order.

    Example 4: High-income family that has already used the basic accounts very fully

    Suppose a family earns $500k, both spouses have stable jobs, they have children and a mortgage, but each year they are already able to do all of the following:

    • Max out the 401(k).
    • Max out the HSA.
    • Fully complete the Backdoor Roth IRA.
    • If the company supports it, they have also already looked into Mega Backdoor Roth.
    • They can still invest a substantial amount in Taxable Brokerage every year.

    This kind of family generally has two needs:

    • First, they still need to protect against family income risk before the children are adults and before the mortgage is paid off.
    • Second, if there is still extra cash flow, they can study more advanced long-term planning tools.

    So Term Life may still be very important, especially when the children are young and the mortgage is still large. IUL can start to be explored, but it does not necessarily need to be purchased right away. When this type of family evaluates IUL, the key question is not, “Can the return beat VOO?” Instead, ask:

    • Do I actually have a long-term life insurance need?
    • Do I need a lifetime death benefit?
    • Do I have legacy planning needs?
    • Can I keep paying premiums consistently over the long term?
    • If we use conservative assumptions only, does this policy still make sense?

    If the answers are reasonably clear, IUL can be studied as an advanced tool. If the only reason is, “I have extra money and don’t know where to put it,” then Taxable Brokerage may still be simpler and more flexible.

    Example 5: Extremely high-income or high-net-worth family

    Suppose a family earns $1M+ per year, or already has a high net worth. Basic retirement accounts, Backdoor Roth, Mega Backdoor Roth, Taxable Brokerage, 529, and so on have already been arranged fairly well. At this point, the role of insurance may shift from “income replacement” to:

    • Legacy planning.
    • Estate liquidity.
    • Long-term death benefit.
    • Tax and cash flow planning.
    • A supplemental tool beyond asset allocation.

    This type of family can take a more serious look at permanent life insurance products such as IUL, Whole Life, GUL, and Survivorship Life. But the higher the net worth, the less you should rely only on sales illustrations. It is even more important to review things together with an insurance broker, a CPA, and an estate attorney:

    • Whether the policy truly matches the legacy goals.
    • Whether the premiums can be sustained over the long term.
    • Whether a trust should own the policy.
    • Whether the death benefit is sufficient.
    • Whether the loan strategy is reasonable.
    • Whether the policy remains sound in low-return scenarios.

    In this case, IUL is more like one component of an overall plan, rather than just an investment product.

    Example 6: Already close to financial independence

    Suppose a family spends $100k per year and already has $2.5M-$3M in investment assets, the children are almost adults, and the mortgage is not very large. At this point, the need for Term Life may have clearly declined. Even if the primary earner suddenly dies, the family may already have enough assets to keep living. At this point, you can consider:

    • Whether you still need to keep the current Term policy.
    • Whether you should reduce the coverage amount.
    • Whether you should stop buying new long-term Term coverage.
    • Whether the focus should shift to withdrawal strategy, tax planning, and estate planning.

    IUL whether you need it depends on whether you have long-term life insurance and legacy needs. If it's just to have one more source of money in retirement, but Taxable Brokerage, Roth IRA, and 401(k) are already enough, IUL may not be necessary. If you have clear legacy needs, or want to keep a lifetime death benefit, you can look into it separately.

    Last: If you really need insurance, how should you buy it?

    Everyone just needs to remember one order first:

    Assess the risk first, then choose the product; understand the logic first, then look at the specific solution.

    If your needs are simple—for example, you just want to buy Term Life, you're healthy, and the coverage amount and term are fairly clear—then comparing quotes yourself through an insurance company or an online platform can work. But if you have any of the situations below, working with an insurance broker is more convenient:

    • You don't know how much coverage you need.
    • You don't know whether to buy 10 years, 20 years, or 30 years.
    • You want to compare quotes from multiple insurance companies.
    • Your health situation is more complicated.
    • Your company already provides group life, but you're not sure whether it's enough.
    • You want to research IUL, but you still don't fully understand how it works.
    • You want to compare the differences between Term, IUL, and investing on your own.

    Going directly to an insurance company usually lets you see only that company's products. The value of a broker is helping you compare multiple companies side by side and, based on your age, health, state, budget, and goals, narrow down the more suitable products. Especially for long-term, complex products like IUL, it's not advisable to decide based on a single illustration. At the very least, have them clearly explain a few core questions first:

    • What problem is this policy actually solving?
    • Is it for protection, legacy, or supplemental cash flow?
    • Why not use Term + invest on your own?
    • If future cash flow changes, will the policy come under pressure?
    • If you only use conservative assumptions, is this plan still reasonable?

    Insurance Broker

    The Hengsheng Group we work with is a licensed insurance brokerage company based in California, specializing in life insurance, retirement planning, and wealth transfer consulting for Chinese-American families. Hengsheng operates under an Independent Brokerage model and works with more than 10 A-rated insurance companies. Based on the client's family structure, income, mortgage, children, health, cash flow, and legacy goals, it can compare plans from different companies instead of recommending only one company's products. Hengsheng can help with:

    • Free needs analysis: Based on age, family structure, income, liabilities, retirement goals, and legacy goals, determine whether insurance is needed, how much coverage is needed, and for how long.
    • Quote comparisons across multiple companies: Compare rates, underwriting requirements, and product differences among partner insurance companies.
    • Underwriting pre-assessment: Based on health history, BMI, medication use, and more, determine in advance which types of companies are more suitable.
    • Term and IUL comparison: Based on cash flow, coverage period, and legacy needs, determine whether a simple Term policy is more appropriate or whether IUL is worth further research.
    • Claims support: When a claim occurs, help prepare documents, communicate with the insurance company, and follow up on progress.
    • Annual policy review: Help review the policy every year to check whether coverage, beneficiaries, and family circumstances still match.

    Hengsheng Insurance is now offering Meika 101 readers a free insurance needs assessment, along with consultations on life insurance, travel insurance, health insurance, and wealth transfer. If you already have a clear need in mind, you can directly add their WeChat account to learn more.

    Interested readers can also join our U.S. personal finance and insurance discussion group (if the QR code no longer works, add the WeChat assistant: uscards101, and they can help add you to the group)

    Frequently Asked Questions

    Why does the Financial Freedom series talk about insurance?

    Because financial freedom is not just about investment returns; it is also about risk management. Before you reach financial freedom, if the main income earner in the household suddenly dies, the whole plan for savings, investments, the mortgage, and the children's education could be disrupted. Insurance is there to prevent a major risk from blowing up the family plan.

    I'm single and don't have kids. Do I need life insurance?

    Not necessarily. If no one depends on your income, and you don't have shared debt or special legacy needs, life insurance usually isn't a high priority. Your focus may be better placed on an emergency fund, 401(k), HSA, IRA, and Taxable Brokerage.

    Once I have kids, do I definitely need to buy Term Life?

    It's not a definite must, but it is well worth a careful evaluation. As long as your children and spouse depend on your income, and you don't yet have enough assets to self-insure, Term Life is usually a very practical risk management tool.

    Is the life insurance my company provides enough?

    Not necessarily. Many companies' group life insurance is only 1x or 2x annual salary, and it may end when you leave the company. If you have a mortgage, children, or a spouse who depends on your income, it's best to calculate the gap separately.

    Is Term Life a waste of money? What if nothing gets paid out when it expires?

    Term Life is fundamentally protection, not an investment. Just like auto insurance or homeowners insurance, it's best if you never need to use it. Its value is in covering the family's most vulnerable years at a relatively low cost.

    When can I stop needing Term Life?

    When you already have enough assets that your family can continue living even if your income stops, and your mortgage and children's education are still covered, the need for Term Life declines. That's also why insurance needs change after financial freedom.

    Can IUL replace a Roth IRA or 401(k)?

    It's generally not recommended to think of it that way. IUL is a life insurance product, not a retirement account. For most people, 401(k), HSA, IRA / Backdoor Roth, Mega Backdoor Roth, and Taxable Brokerage should usually come before IUL.

    Is IUL something that will "definitely pay out for life"?

    Not necessarily. IUL is permanent life insurance, and the design goal can be long-term or even lifetime coverage, but only if the policy stays in force. If premiums are insufficient, cash value is not enough to cover costs, or loans are too large, the policy can still lapse. Once the policy lapses, there is no future death benefit to speak of. So IUL is not something you buy and then ignore; it requires ongoing maintenance.

    If an IUL policy's cash value goes to zero, is it basically the same as Term?

    Not exactly. Term Life is a term life insurance policy with a defined period, defined premium, and defined coverage; IUL is a permanent life insurance framework with cash value, fees, loans, and policy maintenance issues. If an IUL policy's cash value is very low or even zero, the policy may require additional premiums or adjustments, otherwise it may lapse. Its economic effect may be close to "just coverage left," but the structure and risks are still different from Term.

    What's the difference between IUL and buying an index fund directly?

    If the goal is simply investment growth, buying low-cost index funds directly is usually simpler and more transparent. IUL is not a direct index fund purchase; it is a life insurance product with a death benefit, cash value, index-crediting rules, policy loans, and possible living benefits. Its purpose is not to replace VOO / VTI, but to be further researched as an insurance planning tool when there are long-term life insurance, cash value, or legacy needs.

    Is IUL really "won't lose money when the market drops"?

    It depends on how you interpret it. IUL index crediting usually has a floor, so when the index falls, credited interest may not be negative. But the policy still deducts fees and insurance costs, so the cash value is not completely risk-free.

    Are IUL loans tax-free retirement money?

    A policy loan may not be treated as taxable income in some cases, but it is not free money. Loans have interest, and they affect cash value and the death benefit. If the loan is too large and the policy lapses, it can create serious tax consequences.

    If IUL has an accelerated payout for critical illness, does that mean I don't need critical illness insurance?

    Not necessarily. An IUL living benefit is usually an advance on part of the death benefit, so the future death benefit will be reduced accordingly. Standalone critical illness insurance is a different type of insurance with different payout logic and policy terms. They cannot simply replace each other.

    Is IUL suitable if I'm unmarried and don't have kids?

    If no one depends on your income, and you don't have long-term life insurance or legacy needs, then buying IUL just for investing is usually not the first choice. It's more important to first use basic tools well, such as 401(k), HSA, IRA, and Taxable Brokerage.

    Do insurance brokers only recommend expensive products?

    Not necessarily. A good broker should first help you determine your needs, rather than immediately pushing the most expensive product. You can ask directly: if I only need protection, is Term more appropriate? If you recommend IUL, why is it more suitable for me than Term + an investment account?

    Summary

    In the Financial Freedom series, the role of insurance is actually very clear:

    Investment accounts are responsible for building wealth, while insurance is responsible for preventing major risks from derailing the plan.

    Term Life and IUL are both life insurance, but they solve different problems. The core idea of Term Life is:

    Before you reach financial freedom, protect your family's future income at a lower cost.

    It is suitable for most people with family responsibilities, especially those with a spouse, children, a mortgage, and income obligations. The core idea of IUL is:

    Within a permanent life insurance framework, combine death benefit, cash value, indexed crediting, policy loans, and legacy liquidity to provide more long-term planning possibilities.

    It is suitable for a smaller group of people: those with stable cash flow, who have already made good use of basic retirement accounts, who truly need long-term life insurance or legacy planning, and who understand policy costs and risks. For many Chinese-American families, financial freedom is not necessarily just “having enough for yourself.” If the goal also includes a down payment for a child’s home, education funding, startup capital, or even leaving the next generation their first pot of wealth, then legacy planning becomes part of the plan. Insurance can play a role in legacy planning mainly because of two features:

    • First, leverage. Use relatively manageable premiums to secure a clearly defined future death benefit.
    • Second, taxes and liquidity. A life insurance death benefit is generally not counted as federal taxable income to the beneficiary, and it is usually paid out in cash.

    But that does not mean IUL is suitable for everyone. A typical family can think through it in this order:

    1. Does anyone depend on your income? If yes, start with Term Life.
    2. Is the life insurance provided by your employer enough? If not, add Term coverage on your own.
    3. Have you already used 401(k), HSA, IRA / Backdoor Roth, and Taxable Brokerage to a fairly good extent?
    4. If available, have you already looked into Mega Backdoor Roth?
    5. Are you already close to financial freedom, and can you gradually self-insure?
    6. Do you truly need long-term or lifelong life insurance, legacy planning, or tax planning?
    7. If yes, then look further into IUL.

    Insurance is not better just because it is more expensive, and it is not more advanced just because it is more complex. For most families still on the road to financial freedom, using Term Life first to protect against major family risks is more important than jumping straight into researching a complex IUL. But if you have already passed the basic protection stage, your income and cash flow are relatively stable, and you truly need long-term life insurance, legacy planning, or supplemental planning, then IUL can be an advanced tool. Have a professional broker explain the policy structure, costs, loans, and risks clearly before deciding whether it is right for you. The core idea is still the same:

    Protect first, then plan; understand first, then buy.

    The Path to Financial Freedom

    Main guide

    Tools and Practical Walkthroughs

    If you're interested, you can also join our U.S. personal finance and insurance discussion group (if the QR code is no longer working, you can add our WeChat assistant: uscards101, and we’ll help get you into the group)