IRA

So when did life insurance become a retirement account?  With the recent decline of the stock and real estate markets, many are rethinking insurance as an asset class.  Products like whole life, universal life, and indexed universal life have maintained their values when other assets like, stocks, mutual funds, variable annuities, and real estate haven’t.

So, why wouldn’t you consider investing in life insurance?  Insurance has several key advantages over other investments.  First, insurance can provide a guaranteed death benefit.  The death benefit can ensure a positive return for your family on your investment, made via your premium payments.  At life expectancy this return is often in the 6-8% range and is income tax free to the beneficiaries.  That would be the equivalent of a 7.5-11% taxable return at a 28% tax bracket.

Second, like annuities and retirement accounts, the cash accumulation inside of a life insurance policy grows tax-deferred.  This tax-deferral allows the money to grow faster due to the effects of compounding interest on the premiums and the subsequent gains.

Finally, similar to a ROTH account, income produced from an insurance policy can be received tax-free.  So why not just use a ROTH account?  Well, it isn’t insured and the growth isn’t guaranteed.  ROTH’s also have contribution and income limitations, where cash value life insurance doesn’t.  Basically, a life insurance policy has the same advantages as a ROTH without the limitations, plus it offers a minimum guaranteed interest rate and a death benefit.

Let’s recap – life insurance, while not technically an investment, provides all of the following:

1. Long-term protection via a death benefit.
2. Income tax-free return on your investment (premiums) at death.
3. Tax-deferred growth on the internal cash values of the policy.
4. Potential for tax-free income from the policies cash values.
5. No contribution or income limitations.
6. A minimum guaranteed interest rate on the policies cash values.

That’s a pretty nice list of benefits for any “investment”, especially when it’s not considered one by most people.  I know what you’re thinking – if permanent life insurance does all that, why do prominent advisors like Suze Orman and Dave Ramsey tell you to never use it?  The simple truth is that many “old school” advisors – especially those that no longer actively practice their profession, have lost touch with current products, capabilities, and in many cases, laws and regulations that pertain to insurance and investment products.

Additionally, the advice offered by most prominent advisors is intended for “mom and pop” middle America.  As such, it is often generic in nature and focuses on families with median incomes of under $50,000 per year – plus it doesn’t hurt that by making dramatic statement like “never” or “always” creates media attention and provides an audience for their message.  This isn’t wrong; it is just the facts of the situation and should be heard as a word of caution for those needing more specific advice or one-on-one help.

To learn more about augmenting your current assets or investments with cash value life insurance, find a true “Financial Professional”.  He or she will be able to discuss the pros and cons of using life insurance as an asset in your current investment portfolio.  Don’t wait – there is never a good reason to delay making your financial future better.

Tagged as: Financial Professional, Insurance, investment, investments, IRA, life insurance, permanent insurance, qualified plan, Retirement, taxes, universal life insurance, whole life insurance

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