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’m going to talk about life insurance, which I believe 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 coverage period, but that wouldn’t 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 person is 55 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 on time 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, in addition to 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 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 a lifetime, usually up to 100 years. This type of policy is being phased out from many life insurance companies. 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 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 pay off, which means you now have insurance and don’t have to pay any more and the cash value continues to increase. This is a unique part of a whole life policy that other types of insurance may not be designed to carry. Life insurance should not be sold due to cash value buildup, but in periods of extreme monetary 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 were selling products called universal life insurance policies that were supposed to provide life insurance for your whole 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 in additional premiums or the policy lapsed. 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 bought by investors who have a high tolerance for risk. When the stock market falls, the policy owner may lose a lot 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 undergone a big change for the better in recent years. Universal life policies are permanent policies that range in ages as high as 120 years. Many life insurance providers now sell primarily universal and term 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 which has a 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, which means no loss but no gain. Some insurers will still put up to 3% extra profit on your policy, even in a down market. If the market goes up 30% you can share the profit but you are capped so you can only get 6% of the profit and this will depend on the cap rate and the 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 their total investments.