Investing in Whole Life Insurance in a Down Economy
December 8th, 2008
Investors, who once upon a time thought paying higher prices for whole life insurance was frivolous, are now thankful that they listened to their investment counsel. While the cost of whole life insurance policies hasn’t come down, the stability that they offer has only increased in value.
Though whole life insurance may not give as high a return on investment over the short term – like technology stocks – whole life insurance is proving to be the golden nugget in many investors’ portfolios. Designed to be more of a cash reserve that builds up over time against the death benefit, a whole life policy allows for policy owners to borrow against the accumulated cash value for things like medical expenses or college tuition. The policies are tax-deferred and upon maturity of the contract, the cash value usually equals whatever the death benefit would have been.
Whole Life Provides Stability – But at a Price
Another plus is that the cash value as well as the death benefit of the whole life insurance policy is fully exempt from the demands of creditors, bankruptcy proceedings and other legal garnishment schemes.
Variable insurance policies are linked to the stock market and when stocks take a hit (as they did recently) so do the values of these insurance products. Though these variable policies looked good on paper when they were bought back in the early 90s, owners are finding that they’re taking quite a hit now and even having to come up with additional premiums just to keep them active.
Converting between variable and universal or whole policies is possible at a later date but the older the policyholder, the higher the cost of converting that policy over to whole life insurance. In many cases, the cost of converting the policy is three to four times the cost of the variable policy. Insurance companies are customizing many of their policy plans to have some form of product that will help to pay for nursing home care. Some policies even have aspects of both term and whole life insurance in one plan.
In tough times when stocks and some bonds have negative returns, a whole life insurance policy is actually starting to look like a good, stable and lucrative option for those who are willing to pay more in premiums.
photo credit: ArtemFinland
Tags: life insurance investing, stable investment, variable life insurnace, whole life insurance
November 28th, 2009 at 7:09 pm
I wonder how many people have long term care insurance acroos the United States. This health reform in Congress is really making me aware of how little is done for this problem. Long term care insurance may be worth it.