Insurance Broker | Financial Consultant, Lawrence Insurance Consulting, Southern New Jersey
Yes in many ways. The most common method for using life insurance as an investment is through Indexed Universal Life policies.
1. You are looking for an alternative to CD or Money Market accounts with historically low rates of return.
2. You want better growth than those accounts, let`s say 4-6% on average net of any fees.
3. You want that growth to be on tax-deferred basis.
4. You want our money to be totally safe from market losses.
For example, if you purchase a mutual fund at $100,000, and it grows 10% in the first year, your account would reach approximately $110,000. However, if the following year nets you a 40% loss, your account would only be at $66,000. If your third year produced a 10% rate of return, you’d still be below your original investment at $72,600minus fees and expenses.
However, in an Indexed IUL the “reset” every year means you never earn less than zero. So, if you put $100,000 in a single premium Indexed IUL and receive 10% growth your first year, your end result is $110,000. Continuing the hypothetical scenario, say the markets drops 40% in the second year. You’ll lose nothing. After your second year, your account will still be at $110,000. In the third year, your account grows 10%, which means you’ll have $121,000 minus fees and expenses. So what you get is a potential for upside of the market with no downside risk.
Generally the floor is 0% and the cap is 15%. That means that if the S&P index gains 10% for a year your will get 10% into your contract minus fees. If the index moves 20% you will only get 15%. This is the cap that means that you cannot get credited more than that. But if the index loses 10% you will not lose anything. Your contract will get 0% for that year minus policy fees. In a properly structured policy fees are usually around 2%.
Historically, in properly structured IUL policies cash values grow on average 7-8% annually. If you deduct around 2% for policy fees you may net 5-6% annually.
Again, all of your money is liquid from day one, principle and interest. It grows tax-deferred and there is no market risk, but there is a chance for a market gain up to 13-15% annually minus fees.
Also, since it is a life insurance policy you will get other benefits. A fairly healthy 65 year old would get over $200,000 of tax free death benefit with a $100,000 single premium payment. Many of these policies have additional benefits like Terminal Illness rider and Chronic Illness rider included. These are called Living Benefits, which allow you to use a bigger portion of the death benefit when you get terminally or chronically sick.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
Yes, cash value life insurance can work as an investment. That said, comparing the returns of the stock market to a life insurance policy is sort of a fools errand. Why? RISK. Risk is the thing that keeps people up at night, worried about their investments panning out or not. When you consider cash value life as part of your financial plan, you are choosing a conservative, low return, very low risk choice. This may free you up to be more aggressive in other investment options as your cash values become a fall back or "if I screw up elsewhere, I've still got this" investment.
Will cash values provide stock market returns while maintaining the relative safety? Nope. Stock Market returns require taking Stock Market risks. The up and down of a portfolio. Cash Value life will in most cases continue to move upward over time slowly moving upward.
While that doesn't sound exciting, a few years back when the market slapped everybody back ten years, my cash values continued to grow as they don't go backwards. Something to think about as you plan for your life. Cash value plans provide if you don't come home and they provide if you do come home.
One type of life insurance (variable life insurance) has an investment component but no life insurance itself is NEVER an investment.
Life insurance is guaranteed protection. An investment is risk. Without risk the product can NOT be considered an investment.
This is not a bad thing. It's a good thing. Life insurance does what it was designed to do better than any investment ever could.
You will find a few agents that will call life insurance an investment to make a sale. Those who get caught at it are subject to huge fines and can lose their license to sell insurance. It is considered very misleading and the Department of Insurance of your state should be contacted if you ever have an agent telling you such a thing.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
An investment program requires time and money. Time is the one thing that you cannot control. If your investment program is planned over 20 years and you die tomorrow, your investment plan will be useless. Life insurance gives you time because it “self-completes.” The return on investment in the event of premature death is phenomenal. Permanent life insurance has tax benefits not found in other products. However, in the final analysis, it is the ability to pay a death benefit that places life insurance in a class by itself. It should be the backbone of a successful investment program.
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1. You are looking for an alternative to CD or Money Market accounts with historically low rates of return.
2. You want better growth than those accounts, let`s say 4-6% on average net of any fees.
3. You want that growth to be on tax-deferred basis.
4. You want our money to be totally safe from market losses.
For example, if you purchase a mutual fund at $100,000, and it grows 10% in the first year, your account would reach approximately $110,000. However, if the following year nets you a 40% loss, your account would only be at $66,000. If your third year produced a 10% rate of return, you’d still be below your original investment at $72,600minus fees and expenses.
However, in an Indexed IUL the “reset” every year means you never earn less than zero. So, if you put $100,000 in a single premium Indexed IUL and receive 10% growth your first year, your end result is $110,000. Continuing the hypothetical scenario, say the markets drops 40% in the second year. You’ll lose nothing. After your second year, your account will still be at $110,000. In the third year, your account grows 10%, which means you’ll have $121,000 minus fees and expenses. So what you get is a potential for upside of the market with no downside risk.
Generally the floor is 0% and the cap is 15%. That means that if the S&P index gains 10% for a year your will get 10% into your contract minus fees. If the index moves 20% you will only get 15%. This is the cap that means that you cannot get credited more than that. But if the index loses 10% you will not lose anything. Your contract will get 0% for that year minus policy fees. In a properly structured policy fees are usually around 2%.
Historically, in properly structured IUL policies cash values grow on average 7-8% annually. If you deduct around 2% for policy fees you may net 5-6% annually.
Again, all of your money is liquid from day one, principle and interest. It grows tax-deferred and there is no market risk, but there is a chance for a market gain up to 13-15% annually minus fees.
Also, since it is a life insurance policy you will get other benefits. A fairly healthy 65 year old would get over $200,000 of tax free death benefit with a $100,000 single premium payment. Many of these policies have additional benefits like Terminal Illness rider and Chronic Illness rider included. These are called Living Benefits, which allow you to use a bigger portion of the death benefit when you get terminally or chronically sick.
Will cash values provide stock market returns while maintaining the relative safety? Nope. Stock Market returns require taking Stock Market risks. The up and down of a portfolio. Cash Value life will in most cases continue to move upward over time slowly moving upward.
While that doesn't sound exciting, a few years back when the market slapped everybody back ten years, my cash values continued to grow as they don't go backwards. Something to think about as you plan for your life. Cash value plans provide if you don't come home and they provide if you do come home.
Life insurance is guaranteed protection. An investment is risk. Without risk the product can NOT be considered an investment.
This is not a bad thing. It's a good thing. Life insurance does what it was designed to do better than any investment ever could.
You will find a few agents that will call life insurance an investment to make a sale. Those who get caught at it are subject to huge fines and can lose their license to sell insurance. It is considered very misleading and the Department of Insurance of your state should be contacted if you ever have an agent telling you such a thing.