Convertible term before the exit
Lock insurability early; convert later without new underwriting.
By profession · Founders
IUL for tech founders: paper wealth, concentration, and what to do with a liquidity event
Founders are often paper-rich and cash-poor, then suddenly liquid. Both states get pitched IUL. Here’s the honest sequence for equity-heavy wealth — what a liquidity event should fund first, why a lump sum and the MEC line collide, and the narrow place a max-funded IUL earns.
Who this is for: Founders, early employees with meaningful equity, and anyone anticipating a liquidity event.
Before liquidity: protect and diversify
Pre-exit, the plan is defensive: a large convertible term policy for anyone who depends on you (cheap, and it locks insurability before stress does its damage), key-person and buy-sell coverage for the company itself, and whatever diversification the cap table allows. Equity concentration is the real risk in a founder’s balance sheet; no insurance product fixes that. Tax planning around the equity — including whether qualified small business stock treatment may apply — belongs with your attorney and CPA well before any exit.
After liquidity: the sequence and the MEC trap
A liquidity event should fund, in order: liquid reserves, debt payoff, the qualified ceilings (401(k), backdoor Roth, HSA), a diversified taxable portfolio with a fiduciary, and estate planning if the number is large. Then, for surplus with a permanent need — legacy, estate liquidity, a differently-taxed bucket — a max-funded IUL fits. The trap: dropping a lump sum into a policy makes it a MEC and strips the loan tax treatment. A designed policy spreads funding over the 7-pay schedule; the exit proceeds sit in reserve and feed it on schedule.
The essentials
What actually matters here
Diversify — insurance doesn’t fix concentration
Equity is the risk; the sequence after liquidity addresses it first.
Fund on the MEC schedule, not in one check
Proceeds in reserve, premiums on schedule.
IUL can genuinely fit when…
- Reserves, debt, qualified ceilings, and diversification handled post-exit
- A permanent need — legacy, estate liquidity, tax diversification
- Funding spread over the MEC schedule from reserves
- Estate counsel and a fiduciary advisor in the loop
Slow down when…
- Pre-exit with no term coverage in place
- A lump-sum deposit is being proposed
- The IUL is being framed as the diversification
Straight answers
Questions people actually ask
Should a founder buy IUL before or after an exit?
Before: buy convertible term to lock insurability cheaply, and put key-person and buy-sell coverage on the company. After: fund reserves, debt payoff, qualified ceilings, and a diversified portfolio first; then a max-funded IUL can add a no-ceiling, differently-taxed bucket with a death benefit — funded on the MEC schedule from reserves, never as a lump sum.
Can I put exit proceeds into an IUL all at once?
Not without making it a MEC, which strips the favorable tax treatment on loans. Designed policies spread funding over the federal 7-pay schedule; the proceeds sit in reserve and feed the premiums on schedule. Your illustration states the MEC premium.
Does IUL help with concentrated stock risk?
No. Concentration is addressed by diversification, hedging strategies, and tax planning with your advisor and CPA. IUL is a late-sequence bucket with a death benefit; it doesn’t reduce the risk of one company being most of your net worth.
Honest, or not at all
See whether IUL actually fits your situation
Tell us a little about your goals and we'll show you the honest picture — including the guaranteed column, the real costs, and whether term or whole life does the job better. We're paid the same either way, which is why we can tell you the truth.
- We compare IUL against the simpler options first
- Illustrations explained line by line, guaranteed column first
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