Cash Value Life Insurance as an Asset Class

Paid-up Additions are a crucial component to whole life insurance when someone wants to focus on cash value accumulation. In fact, we declared the rider–the magic of cash value life insurance a long time ago.

But we’ve tended to be real loosey-goosey about a very important distinction between paid-up additions, which was entirely by accident. And today I’m going to try to further solidify precisely what we look at when it comes to sorting out coveted policy features specifically regarding whole life insurance as those features pertain to life insurance as a low risk asset class.

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Indexed universal life insurance is the product that can rival participating whole life insurance for cash accumulation and income strategies. It’s risk profile is similar, and it brings even more flexibility to the table than a well-designed blended whole life policy.

Several months ago we dished on what carriers we felt were best bets for whole life insurance when cash accumulation was top of mind. Today we’ll details our picks for indexed universal life insurance.

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Bank on Yourself® and the Infinite Banking Concept® are well known selling systems that promote whole life insurance, but can we apply the secret sauce of these ideas to universal life insurance as well as whole life insurance?

The purests (i.e. those with a vested interest in promoting whole life insurance) would tell you know. But not one to avoid a fight, I’m going to suggest they may be lying to you.

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The “is whole life insurance a bad investment?” discussion is a great example of the classic advice we were given when the internet was a fairly new phenomenon and we had only just begun to use it as a resource for information. As we were out searching the world wide web with Metacrawler we were commonly reminded that we must be careful about the information that exists on the internet because anyone can put whatever they want on it–fact or fiction.

Blogging has become another source of mixed information that is sometimes difficult to dissect when it comes to fact or fiction. And on the subject of personal finance, and specifically insurance, there are a lot of opinions. I’ve discovered that most of the not so friendly cash value life insurance adherents tend to develop their opinions in deeply rooted ignorance, and today we’re going to walk through one such example.

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I want to start today’s discussion about whole life insurance and Roth IRA’s by noting that I had mixed feelings about writing this post. This one was motivated by requests to retort a blog post that showed up on a certain ER Doc turned part-time financial guru’s web site when he posted several reasons why whole life insurance and Roth IRA’s are not similar.

Here’s the problem for those who have made the request that I “take him on.” I don’t disagree with him.

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There’s no doubt a number of people have made arguments against the ownership of cash value life insurance. You don't have to spend a lot much time surfing ye olde' interwebs to find such evidence.

Too many of these arguments are propped up on misinterpretations of the various products that exist–heck even the agents themselves can’t come to a consensus on how things work.

But one of my favorite literal interpretations about cash value life insurance that's used to substantiate the opposition is the fact that life insurance companies keep the cash in your life insurance policy when you die. “You don’t get the cash when you die, the insurance company keeps it!”

They exclaim with sharp disapproval. And most of you who don’t know any better fall for it.

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So here we are talking once again about the wonders of cash value life insurance.  I know, I know…most of you are rolling your eyes in sarcastic disbelief that we could possibly have anything more to say about the subject.

After all, we've written nearly 300 posts at the insurance pro blog and more than a handful have revolved around the use of cash value life insurance.  Not to digress but I would like to point out that we often use the terms cash value life insurance and permanent life insurance interchangeably.  Just to clarify.

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Our regular readers know that we have a certain love/hate relationship with the whole Bank On Yourself®, Infinite Banking, and their various iterations. We certainly enjoy their work in furthering the cause, the notion that one really can use cash value life insurance as a means to accumulate wealth and that the products actually do make for an incredibly stable and predictable asset.

But…

Our good friends at their respective camps also tend to make a few claims that we think are a tad over the top. While the notion that whole life insurance and/or universal life insurance can be used as a means to acquire the funds for major purchases, and that the use of life insurance to do so has a much smaller economic impact on the individual are certainly all valid, we’ve pointed out numerous times in the past that these systems are totally off base in their suggestion that one can enrich his or her life further by virtue of using their life insurance policy for policy loans. In other words, it’s good…but it’s not that good.

We’ve been asked quite a few times to put the logical discussion into more concrete terms with a numerical example. Our delay in doing so has nothing to do with our unwillingness, and everything to do with lack of time to focus energy on putting the numbers together, that all comes to an end today.

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As we’ve mentioned before, most life insurance agents like to spar about the numbers in a way that seeks to make the particular whole life insurance policy they're pitching seem like the clear winner.  But of course the truth of the matter is that how a product currently performs or is illustrated given a present set of assumptions doesn’t much matter.

Well…that might be a slight misstatement.

Not to say that it shouldn’t be a factor but it isn’t all that difficult to manipulate current assumptions to make your product look better than your competition.

Remember the design of a whole life insurance policy is crucial  and unfortunately this is where a great many agents falter.  Yes, there are some essential, core features that a policy should contain to make it perform as it should when using it to accumulate cash value as an asset but it's the application of those features that matters most. 

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Blended whole life is a concept we really like. We maintain that it’s the way to purchase whole life insurance if cash accumulation is your primary goal.

Anyone who has learned that you can use whole life insurance as an asset and income tool should probably also take a look at a blended policy.

If you’ve been shown a standard whole life policy (i.e., no paid-up additions and no blending used to maximize paid-up additions), we invite you to challenge the performance of that policy against what can be done with the advantages of this truly unique blended design.

Perhaps you’d first like to see some proof to back up our claims that this blending business is truly beneficial?

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