Do you have to die to reap a return on your life insurance policy? If you do have a life insurance policy, do you think you are worth more today, dead than alive? Well, I’m not sure how your family would appreciate the answer to the last one but in today’s modern economy, life insurance companies along with their permanent insurance policies are garnering much attention during a rocky economy.
A few reasons why:
1) Safety – According to Byron Udell, a lawyer and Certified Financial Planner who is founder and CEO of Accuquote says, “Life insurance companies as a general rule don’t invest more than 5% of their investable assets in equities. Most of their money is in bonds and they are very conservative. Otherwise there’d be many insurance companies going out of business right now [as compared to banks and large corporations].”
Excluding variable life policies who are directly affected by day to day stock market volatility, the positive results are passed on to current policy holders who have not experienced major ups and downs in the cash value of their permanent life insurance policies.
Think about it, how many life insurance companies DO you hear are having major financial difficulties today? Not many, if at all. What about AIG you say? Well, it was the holding company that was having major issues, not their subsidiary American General Life Insurance Company who is currently rated A+ (meaning Strong) by Standard and Poor’s.
2) Guarantees – permanent life insurance policies (whole, universal and index universal) have an annual fixed return stated upfront. Within index universal policies, many policyholders can choose either the fixed return or the upside gain, limited to a certain amount (or cap), in the index they choose that the life insurance carrier offers in their policy (S&P 500, Hang Seng, EuroStoxx, etc). If the economy where to experience a drop in value, permanent life insurance policies will still get credit for the promised fixed returns and better, their current cash value is also protected from any downside risk.
3) Tax Advantages – a properly structured permanent life insurance policy (not term insurance) in accordance w/IRS section 7702 provides for the accumulation of cash value that can grow tax-deferred and accessed via loans/withdrawals without paying tax. Plus this does not employ the tricky pre-59 1/2 year old withdrawal policy that comes along with traditional IRAs and 401(k) plans.
Lastly, if you are facing bankruptcy, the Illinois Complied Statues allows proceeds and cash value from your permanent life insurance policy to be 100% exempt from creditors.
I hope this helps trigger deeper questions and quality conversations between you and your financial advisor or life insurance agent on where to put your serious money.
Byron Udell continues, “You can always get another style of mutual fund, savings or brokerage account. But there is nothing in the marketplace that is similar to what life insurance can do for you overall. There is no substitute for it.”