How to view life insurance as an investment tool

Many people have been contacted about using life insurance as an investment tool. Do you think life insurance is an asset or a liability? I’ll talk about life insurance, which I think is one of the best ways to protect your family. Is buying temporary insurance or permanent insurance the main question people should consider?

Many people choose term insurance because it is the cheapest and provides the most coverage for a specified period of time, such as 5, 10, 15, 20, or 30 years. People live longer, so term insurance may not always be the best investment for everyone. If a person selects the 30-year term option, they have the longest coverage period, but that would not be the best for a 20-year-old because if a 25-year-old selects the 30-year term policy, at 55 years the term would end. When the 55-year-old is still in good health but still needs life insurance, the cost of insurance for a 55-year-old can be extremely expensive. Do you buy forward and invest the difference? If you are a disciplined investor, this might work for you, but is it the best way to transfer assets to your heirs tax-free? If a person dies during the 30-year period, the beneficiaries would get the nominal amount tax-free. If your investments other than life insurance are transferred to the beneficiaries, in most cases, the investments will not pass tax-free to the beneficiaries. Term insurance is considered term insurance and can be beneficial when a person is starting out in life. Many term policies have a conversion to a permanent policy if the insured feels the need in the near future,

The next type of policy is whole life insurance. As stated in the policy, it is good for life, usually up to 100 years. This type of policy is being phased out from many life insurance companies. The whole life insurance policy is called permanent life insurance because as long as the premiums are paid, the insured will have life insurance up to 100 years. These policies are the highest priced life insurance policies but have guaranteed cash values. When the whole life policy accumulates over time, it creates cash value that the owner can borrow. The whole life policy can have a substantial cash value after a period of 15 to 20 years and many investors have realized this. After a period of time (usually 20 years), the whole life insurance policy can be canceled, which means that you now have insurance and do not have to pay more and the cash value continues to increase. This is a unique part of the whole life policy that other types of insurance cannot be designed for. Life insurance should not be sold due to the accumulation of cash value, but in periods of extreme monetary need it is not necessary to borrow from a third party because you can borrow from your life insurance policy in the event of an emergency.

In the late 1980s and 1990s, insurance companies sold products called universal life insurance policies that were supposed to provide life insurance for a lifetime. The reality is that these types of insurance policies were poorly designed and many expired because as interest rates fell, the policies did not perform well and customers were forced to send additional premiums or the policy expired. Universal life policies were a hybrid of term insurance policies and whole life insurance policies. Some of those policies were tied to the stock market and were called variable universal life insurance policies. My opinion is that variable policies should only be bought by investors who have a high tolerance for risk. When the stock market falls, the policyholder can lose a lot and be forced to send in additional premiums to cover the losses or their policy would expire or end.

The design of the universal life policy has undergone a major change for the better in the current years. Universal life policies are permanent policies that range in ages up to 120 years. Many life insurance providers now sell primarily term and universal life policies. Universal life policies now have a target premium that is guaranteed, as long as the premiums are paid, the policy will not expire. The newest form of universal life insurance is the indexed universal life policy that has a performance linked to the S&P index, the Russell index and the Dow Jones. In a bear market, you generally don’t make a profit, but you don’t make a loss for the policy either. If the market is rising, you can make a profit, but it is limited. If the index market has a loss of 30%, then it has what we call the floor, which is 0, which means that it has no loss but no profit. Some insurers will still give up to 3% additional profit on your policy, even in a declining market. If the market goes up 30% then you can share the profit, but you are limited so you can only get 6% of the profit and this will depend on the capitalization rate and the participation rate. The capitalization rate helps the insurer because it is taking the risk that if the market falls, the insured will not suffer and if the market rises, the insured can participate in a percentage of the profits. Indexed universal life policies also have cash values ​​that can be borrowed. The best way to see the difference in cash values ​​is to ask your insurance agent to show you illustrations so you can see what fits your investment profile. The indexed universal life policy is designed to be beneficial to the consumer and the insurer and can be a viable tool in your total investments.