Don’t tell your stockbroker or mutual fund company, but the cash value portion of equity index linked universal life insurance (IUL) policies can be used to replicate a diversified portfolio, with lower cost and less volatility. James Garfinkel, founder and CEO of New Amsterdam Life has been extolling the virtues of equity Indexed universal life insurance for years, however it wasn”t until the recent market downturn that demand for these products really exploded. “People are gravitating to products that can deliver above-average returns with lower risk,” observes Mr. Garfinkel.
Model stock portfolio returns are based on always being in the market, and consistently buying, even in times of market turmoil. The reality is most of us are not always in the market and we typically sell during a financial crisis rather than buy, and then we buy after the market is “safe” — sacrificing much of the upside of a post-crisis bounce.
Is it any wonder your portfolio performance doesn’t match up to your fund company’s model?
IUL policies are linked to the performance of a specific index, like the S&P 500, so that if the index is up over a one-year period, the account will be credited a corresponding percentage up to a cap, currently in the range of 12% to 20%. If the index is down, the account will be guaranteed a certain base, or floor, usually zero to 2%. The policy does not directly participate in the market.
The combination of the cap and floor reduce volatility as opposed to owning the basket of stocks outright. Furthermore, there are no additional management or account fees.
While the S&P 500 is the most popular index, carriers provide the possibility of exposure to the S&P MidCap 400, Dow Jones Industrial Average, NASDAQ 100, Russell 2000, Dow Jones EURO STOXX 50, Hang Seng Index, commodity price indexes and others. Fixed-income exposure can also be added to the mix.
You can choose what portion of your cash value is allocated to any particular index, and how much is maintained in fixed income.
Further, you can choose to have your allocation made in equal monthly installments, so that you have a constant market exposure, as advisors suggest.
Books like The Investment Answer underscore that the best long-term performance is found in indexed funds, consistently invested and diversified, not in higher-cast actively-managed accounts.
IUL policies can provide such performance, along with tax-free internal cash value build-up, and, of course, death benefit protection that your beneficiaries will receive tax-free.
Try getting all that with your model portfolio…
Monthly Archives: January 2023
What Can I Do If I Miss Paying My Life Insurance Premium
We all buy life insurance to protect the people we love after we’re gone. To maintain our coverage we must, of course, pay for our policies. Most people make monthly premium payments.
However, with the unemployment rolls increasing, more and more people miss an occasional payment. This article looks at how you can fix this problem.
If you miss paying any premiums your insurer will contact you and advise you that they haven’t received your payment. They do this because it could be a banking error or a simple oversight on your part.
They’ll also tell you that unless you pay your premium within a set amount of time – your grace period – they will automatically cancel your policy.
Pay Your Premium within the Grace Period
If you miss a life insurance payment most companies have a thirty to thirty-one day grace period within which you can make your payment and not suffer any negative consequences whatsoever. Even if you die within this grace period your beneficiaries will collect the death benefits. However whatever premium is due will first be deducted.
The bad news is that if the grace period ends and you still haven’t made your premium payment your life insurance policy will lapse. Some life insurance companies will permit you to reinstate your lapsed policy within certain timeframes. However you will first have to prove that you are insurable, pay off any outstanding loans you might have against your policy, and pay them all of your overdue premiums plus whatever interest has accrued.
And if you are accepted your premium will probably be higher because you will be older. In addition, if your health has substantially deteriorated your premium may be considerable higher. If the situation is extreme you might be uninsurable.
A Possible Solution – Have Your Payment Withdrawn From Your Cash Value
You may be able to protect yourself against your policy lapsing if you own a cash value policy. With your authorization your insurance company can withdraw money from your insurance policy’s cash value to take care of your payments. Keep in mind, though, that this will only keep your policy active if you have cash value.
An Additional Solution – Protect Yourself When You Buy Your Life Insurance Policy
If you want to preclude the possibility of losing your life insurance coverage you may be able to add a “Waiver of Premium” option to your policy. If you have this waiver and become unemployed or cannot work temporarily because of an accident or illness your insurer will take over the payments until you return to work once you have contacted them and informed them of the situation.