Many people have been contacted about the use of life insurance as an investment tool. Do you think life insurance is an asset or a liability? I’m going to talk about life insurance, which I think is one of the best ways to protect your family. Is buying term 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 set period of time, such as 5, 10, 15, 20, or 30 years. People are living longer, so term insurance isn’t always the best investment for everyone. If a person selects the 30-year term option, they have the longest period of coverage, but that would not be best for a 20-year-old because if a 25-year-old selects the 30-year term policy, the 55 years the term would end. When the person who is 55 years old and 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 in term and invest the difference? If you’re a disciplined investor, this might work for you, but is it the best way to pass assets to your heirs tax-free? If a person dies during the 30-year period, the beneficiaries would get the face amount tax-free. If your investments, other than life insurance, are passed on to beneficiaries, in most cases, the investments will not pass tax-free to the beneficiaries. Term insurance is considered temporary insurance and can be beneficial when a person is just 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 valid for life, usually up to 100 years. This type of policy is being phased out by 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 for up to 100 years. These policies are the highest priced life insurance policies, but they have guaranteed cash values. When the whole life policy builds up over time, it builds 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 paid off, meaning you now have insurance and don’t 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 may not be designed to do. Life insurance should not be sold due to the accumulation of cash value, but in times of dire financial need you do not need to borrow from a third party because you can borrow from your life insurance policy in 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 your entire life. The reality is that these types of insurance policies were poorly designed and many expired because as interest rates fell, the policies did not work well and clients were forced to send in additional premiums or the policy expired. Universal life policies were a hybrid of term insurance 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 purchased by investors who have a high tolerance for risk. When the stock market falls, the policy owner may lose heavily and be forced to send in additional premiums to cover the losses or their policy will lapse or terminate.

The design of the universal life policy has had a great change for the better in the current years. Universal life policies are permanent policies that range in ages as high as 120 years. Many life insurance providers now primarily sell term and universal life policies. Universal life policies now have a target premium that has a guarantee, as long as the premiums are paid, the policy will not lapse. The newest form of universal life insurance is the indexed universal life policy that has performance linked to the S&P index, the Russell index and the Dow Jones. In a falling market, you usually have no profit, but you also have no loss on the policy. If the market goes up, you can make a profit, but it is limited. If the index market has a 30% loss, then it has what we call the bottom, which is 0, meaning no loss but no gain. Some insurers will still give up to 3% extra profit on your policy, even in a falling market. If the market goes up 30% you can share in the profit but it is capped so you can only get 6% of the profit and this will depend on the cap rate and participation rate. The capitalization rate helps the insurer because it runs 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 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 have your insurance agent show you illustrations so you can see what fits your investment profile. The indexed universal life policy has a design that is beneficial to the consumer and the insurer and can be a viable tool in your total investments.