Many people have been approached about the use of life insurance as an investment tool. Do you believe life insurance is an asset or a liability? I will discuss life insurance which in my opinion is one of the best ways to protect your family. Are you buying term insurance or permanent insurance is the main question that people should consider?
Many people choose term insurance because it is the cheapest and offers the most coverage for a period of time, such as 5, 10, 15, 20, or 30 years. As people live longer, term insurance may not always be the best investment for everyone. If a person chooses the 30-year term option, they have the longest period of coverage, but that would not be the best for someone in their 20s, because if a 25-year-old chooses the 30-year term policy years, at age 55, the term would end. When a 55-year-old is still healthy but still needs life insurance, the cost of insurance for a 55-year-old can become extremely high. Are you buying forward and investing the difference? If you are a disciplined investor this might work for you, but is it the best way to pass assets on to your heirs tax-free? If a person dies within the 30 year period, the beneficiaries would get the sum insured tax free. If your investments other than life insurance are passed on to the beneficiaries, in most cases the investments will not be exempt from tax to the beneficiaries. Term insurance is considered term insurance and can be beneficial when a person is starting their life. Many term policies can be converted to a permanent policy if the insured feels the need to do so in the near future,
The next type of policy is whole life insurance. As the police say, it is good for your entire life, usually until the age of 100. 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 until the age of 100. These policies are the most expensive life insurance policies, but they have a guaranteed cash value. When the whole life insurance policy accumulates over time, it creates cash value that can be borrowed by the owner. The whole life insurance policy can have a substantial cash value after a period of 15 to 20 years and many investors have taken notice. After a while, (usually 20 years), the whole life insurance policy can be released, meaning that you now have insurance and don’t have to pay anymore and the cash value continues to grow. This is a unique part of the whole life insurance policy for which other types of insurance cannot be designed. Life insurance should not be sold due to the accumulation of cash value, but in times of extreme monetary need, you do not need to borrow from a third party because you can borrow against your emergency life insurance policy.
In the late 80s and 90s, insurance companies were selling products called universal life insurance policies that were supposed to provide life insurance for your entire life. The reality is that these types of insurance policies were poorly designed and many lapsed because as interest rates fell, the policies did not perform well and customers were forced to send additional premiums or money. the policy had lapsed. Universal life insurance policies were a hybrid of term insurance and whole life insurance. Some of these policies were linked to the stock market and were called variable universal life insurance policies. I think variable policies should only be purchased by investors who have a high tolerance for risk. When the stock market goes down, the policy owner can lose big and be forced to send additional premiums to cover the losses, otherwise your policy will expire or be canceled.
The design of the universal life insurance policy has undergone a major change for the better in the present years. Universal life insurance policies are permanent policies with an age of up to 120 years. Many life insurance providers now primarily sell term and universal life insurance policies. Universal life insurance policies now have a target premium which is guaranteed as long as the premiums are paid the policy will not fail. The most recent form of universal life insurance is the indexed universal life insurance policy whose performance is linked to the S&P Index, the Russell Index and the Dow Jones. In a bear market, you usually have no gains, but neither do you have losses for the policy. If the market is going up you may have a gain but it is limited. If the index market has a 30% loss, you have what we call the floor which is 0 which means you have no loss but there is no gain. Some insurers will still give up to 3% added gain to your policy, even in a declining market. If the market goes up 30% you can split the gain but you are capped so you can only get 6% of the gain and it will depend on the cap rate and the participation rate. The cap rate helps the insurer because it takes the risk that if the market goes down, the insured will not suffer and if the market goes up, the insured can share a percentage of the gains. Indexed universal life insurance policies also have cash values that can be borrowed. The best way to see the difference between cash values is to have your insurance agent show you some illustrations so you can see what matches your investment profile. The index universal life insurance policy has a design that is beneficial to both the consumer and the insurer and can be a viable tool in all of your investments.