The Hare vs. the Tortoise
Let's face it, Wall Street is sexy. Where else can the lure of 150% returns and the calculation of standard deviation, variance, and geometrically weighted returns create such excitement? Wall Street is the red Ferrari, the F-16 fighter, the Rocky Balboa of earning money. Just remember that Rocky took some hard knocks along the way!
But what about "good old, boring life insurance?" Can it be a good investment?
Many advisors today would tell you that the answer to that question is no. Certainly those advisors who also happen to be stockbrokers would say that. But our parents would have had a different idea. To the “greatest generation” the idea of risking money in the market brought back unpleasant memories of losing everything in the great depression.
But it's just not sexy, insurance. Ugh! Why would anyone want the tortoise when they can have the rabbit?
A Couple of Things to Consider
There is no question that the market allows for high growth. But what about the safety of principal? Is that important to you? If you came through 2008 in the market, it probably ranks high on your list today. Here's a number of life insurance attributes you might not be aware of:
- Money Grows Tax-Free
No 1099 Form need be filed each year with the IRS. All dividends and earnings are reinvested into the contract.
- Money Can Be Removed Tax-Free
The tax code provides a way for a properly structured policy to return cash value to policyholders tax-free. Comparisons between your stock portfolio and insurance cash value should reflect taxation upon distribution.
- Growth Rates Are Impressive
Annual gains are competitive with market rates (with caps of 10-15%)
- Gains are Locked-In Annually
Once it's there, it stays there
- If You Die It Funds Itself
With any other investment vehicle the value is only as good as what you put into it, plus growth. But with an insurance contract, if you make one payment and die, the value of the contract is completed by the insurance company. Life insurance creates an instant estate.
- Stock Market Losses Have No Effect on Your Principal
This statement explains itself.
- Some Policies Provide a Free Long-Term Care Benefit
With a traditional long-term care policy, if you never need care the money is usually forfeited. Not so with a hybrid life/long-term care contract.
- Guaranteed Income Riders can be Attached
Some income riders grow, by contract, upwards of 10% for ten years, then pay out at rates ranging from 5-8% per year, for as long as the policyholder (and spouse!) lives. To me, this is one of the best deals in the financial world, and one your stockbroker will never tell you about.
- Insurance Companies are Among the Most Stable Financial Firms in the Country
Banks must only keep 10% in reserve. That's why banks close their doors when too many folks show up at once wanting their money. They don't have it! Insurance companies are required to always have 100% of what they need to meet their contractural obligations on hand.
What's not to like?
Our parents and grandparents were probably not heavily invested in the stock market. Thanks to the great depression, they were risk-averse. In 1980 only 5% of Americans owned securities of any kind. Then, after the advent of tax-deferred vehicles like 401-K’s everyone beat a path to the stockbroker's door, and the Wall street media machine began re-educating us as to just how greedy we really are. Today, sexy Wall street has the pizzazz to dazzle us, and to humble us.
Am I against investing? Absolutely not! There's still no better way for a young person to consistently grow assets over time. I'm just saying it's not the only way. Many very wealthy people are aware of the safety and growth potential of life insurance, not to mention estate tax perks. Depending on your tolerance for risk, and station in life, it just may be that life insurance is a better way to reach those retirement goals, without the wild up’s and downs that seem to be the norm today.
Until next time,
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Insurance and annuity products are not sold through Virtue Capital Management, LLC (“VCM”). VCM does not endorse any annuity or insurance products nor does it guarantee any annuity or insurance products performance.