This week we're back with part 2 in our two part series on how life insurance will fair in a booming stock market?
Hope you're buckled in for this one, I'm sure some feathers will be ruffled but that wouldn't be all that unusual…would it?
We think it's fair to assume that we can basically ignore current assumption universal life insurance in this discussion (for those of you who were wondering if we were going to bring it up). Why? Mainly because we think it's pretty safe to assume that it will move in tandem with whole life insurance…for the most part.
And secondly because it's an almost irrelevant product at the moment. There are plenty of legacy contracts on the books at insurance companies but there's not much of it sold currently. Not because there's anything wrong with current assumption UL per se, just that it's not as attractive at current interest rates.
Now that we got that out of the way, let's move on.
But I Don't Want My Money in the Market
That's something we here a lot from our clients and we totally get it. For most people, one of the major reasons they're considering the use of cash value life insurance as an asset class for a good bit of their discretionary investment income, is because they'd like to get away from the market.
So, understandably they are a little apprehensive when presented with indexed universal life insurance and the fact that the performance is tied to the movement in an index.
We totally get it but there are a couple things you have to keep in mind:
1. You, as the insured/owner of the policy are not investing directly in the market. The life insurance company is buying options on a particular index (most commonly the S&P 500) and is promising to let you participate in some of the appreciation (if there is any) up to a cap (12-14% at the moment) and..
2. The insurance company is promising you that you will not participate in any of the downward movement of the index. Typically the worst you can do in any contract year is 0% and in some cases 1%.
That's it, you're really not investing in the market and over the long term you should not expect to outperform and stock market index. If you want market returns, you should put money in the market.
However, if you want the ability to participate in upward movements without being forced to also participate in the downward movements, indexed universal life insurance is a great alternative.
Enough with the Theory…What About the Numbers?
If you really want to see a breakdown of all the numbers I encourage you to look at Brandon's most recent post: Is Indexed Universal Life Insurance Dead in the Water? The information he compiled in that post is framing our entire podcast for today.
Skip forward to minute 9:00 and you'll here us detail all the numbers he compile and our discussion of that data.
But You Guys Like Whole Life Insurance More….Right?
We've become aware that people may actually believe this about us, so if you tune in at 15:18 to find out what we really think. One thing worth mentioning here in text, is that we see many agents moving the shells so to speak to continuously talk about the superior guarantees provided in a whole life insurance contract.
But is that really true?
Honestly, we don't much stock in the guaranteed side of the ledger for either whole life insurance or indexed universal life insurance. Why? Because for either type of policy to revert to that far down to be at the guaranteed rates and/or expenses, we'd all likely have more significant problems.
To be at the guarantees, you'd have to see a financial crisis the likes of which we can't even imagine. Consider this…it's never happened in the past even during times like the Great Depression nor the housing meltdown of 2008. We're guessing that you'd probably be more concerned with canned beans and bullets in this type of scenario and a lot less concerned with what your life insurance policy is doing.
If you'd like to learn more about we can help you, please fill out the contact form or give us a call at 1-888-839-0404. We're always happy to help.