Savings & Life Insurance

Cash value life insurance provides both death benefits and a savings feature. When you buy a permanent or cash value policy, part of your premium pays for the life insurance protection and part goes toward the savings component. As you pay your premiums the savings portion is invested, and the principal and earnings accumulate as your cash value.

You aren't required to leave the funds in the policy, however. You can sometimes withdraw from or borrow against the accumulated cash value. You can then use the withdrawn or borrowed funds to finance your retirement, pay a child's college tuition, or assist a child with a down payment on a house, among other things. This type of insurance can be a valuable asset, both as an investment and for life insurance purposes.

Types of life insurance policies you can use to save

Whole life:
With a whole life policy, insurers generally invest the funds primarily in long-term fixed-rate securities (bonds, for example) that typically provide the policyholder with modest returns of perhaps 3 to 5 percent. Additional returns may also be achieved through dividend distributions (if applicable).  Yet, because whole life premiums don't vary in frequency or amount as they might with universal life, whole life is a more predictable product.

Variable life:
With a variable life policy, you choose how to invest the premiums from the investment choices available in the policy. You can place them in potentially higher-yielding stock and bond funds if you desire. The funds are invested at a variable rate of return. Since you control how the funds are invested, you can choose more aggressive investments if the markets are flourishing. Over the last 20 years, the return on variable life policies has far exceeded the return on most whole life policies. A variable life policy is an appropriate choice if you can tolerate the higher degree of risk. However, variable life returns depend on market conditions. Therefore, while you'll receive strong returns when the market is soaring, your returns will drop when the market falls.

Universal life:
With universal life, the insurer invests the savings portion of your premium in a fixed-rate account that is subject to change at regular intervals. You have no control over how the funds are invested. These investments can yield fairly attractive returns when rates on fixed investments are rising. However, while you generally receive interest at close to market rates, you can't easily predict the long-term return. Since universal life policies typically allow you to raise or lower your premiums on an annual basis, you can increase your contribution when the insurer is offering a higher return. This flexibility with premium payments is one of the primary advantages of universal life.

Variable universal life (VUL)
With variable universal life, you choose how to invest the premiums. You are given a number of investment accounts to choose from, ranging from conservative to aggressive portfolios. A VUL policy is a viable choice to consider if you can tolerate the higher degree of risk involved. However, VUL returns depend on market conditions. Therefore, when the market falls, so will your returns. VUL typically allows you to raise or lower your premiums on an annual basis. This flexibility with premium payments is a key advantage of VUL.

Advantages of using life insurance as a savings vehicle

• It provides life insurance protection for your family.
• You can earn money on your premium payments (depending on investment performance).
• The cash value grows tax deferred until withdrawn or surrendered.
• Sometimes you can withdraw from the cash value (generally up to a certain percentage).
• You can borrow from the cash value at a relatively low interest rate (the amount you can borrow will vary by policy type).
• You may be able to combine a policy loan with a policy withdrawal.
• You may have a number of investment choices (depending on policy type).

NOTE: Depending on the specific type of cash value policy, some of these advantages may apply in varying degrees or not at all.

Please Note: The information contained in this Web site is provided solely as a source of general  information and resource.  It is a not a statement of contract and coverage may not apply in all areas or circumstances.  For a complete description of coverages, always read the insurance policy, including all endorsements.