24 April 2012 0 Comments

More Stops On The Permanent Life Insurance Trail

So far I’ve discussed Whole Life—Non-Participating and Participating.  Here I’ll make a quick stop at two additional permanent policy types before moving on to Universal Life.  Well, actually I’ll deal with three policy types here.  Following my discussion of Variable Life I’ll cover Indexed Life which is similar to Variable. 

Interest Sensitive Whole Life Insurance (ISWL)

This type of policy is like Participating Whole Life Insurance except that instead of paying dividends, non-guaranteed excess interest is used to enhance the policy’s cash value.  And like Participating Whole Life Insurance, ISWL is not a competitive product for most applicants when compared to other policy choices.  It is preferable to Non-Par Whole Life, but not as attractive as Universal Life which I’ll explain in my next edition.

It falls more into the “black box” description of policies than “transparent” since the non-guaranteed cash value is determined by the insurance company.

Variable Life Insurance (VLI)

Variable Life Insurance is a combination of an investment fund and Life Insurance. Most versions of VLI have a UL structure (More on that in my next edition).  Agents selling VLI must not only be licensed to sell Life Insurance, they must have a securities license with the National Association of Securities Dealers (NASD). With VLI, the policy owner decides how to invest the cash value, selecting accounts made available by the insurance company.  Some of the accounts are managed by the insurance company, but others are managed by outside investment firms including well known Mutual Funds.

VLI structured as Universal Life is quite transparent.  All the moving parts are easily identifiable.  The one thing that lacks some clarity is the cost of insurance.  Some VLI policies will have a competitive, guaranteed cost of insurance (mortality charges), but normally only for a duration of time that is shorter than life expectancy.  So, if its death benefit guarantees that you’re looking for, VLI is not the best product to buy.  If you are interested in building cash values, then VLI can be attractive, but you must have the temperament to ride the waves of the market, the expertise to reposition your assets to maximize your return and the time to do both.

Earlier, I stated that it was usually best to purchase the lowest guaranteed premium death benefit in a Life Insurance policy and manage investments separately.  There can be some tax advantages of building cash within a life insurance policy to create a future income flow, but I’ll deal with that in a later discussion.  Just be sure that you have used low cost life insurance to properly protect your family before moving on to any type of investment.

Indexed Life Insurance (IL)

IL is similar to VLI in as much as the cash value is tied to an investment index.  Structured as a UL policy it is quite transparent and the indexes available will be the Standard and Poor’s 500, or others, some that might be tied to bond performances.  There is also a fixed, guaranteed account available.  The death benefit guarantees are generally better than VLI and the selling agent does not require a securities license.  It does not have the investment choices of a VLI policy, but because of better guarantees it might be an alternative if you are contemplating VLI.

Are you hanging in there?  I hope so because next I tackle the best solution to low cost permanent life insurance—Universal Life.


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