Borrowing money

How Life Insurance Policies Work Like Investments

Research shows that almost as many Americans do not own life insurance, but the COVID-19 pandemic has increased awareness of the value of having a policy.

Yet, determining which type of life insurance policy is best for individuals and their families can be complicated. Mark S. Gardner (, president of Retire Well Dallas, says consumers need to understand the differences, including how policies act as investment vehicles.

“What would happen to your dependents if you died without any life insurance you independently invested in?” Gardner says. “Do you leave enough other assets to support them? I advise everyone to investigate life insurance coverage for yourself, in addition to any insurance offered to you at work.

Gardner explains how different types of insurance policies work as an investment:

All the life. “You typically make fixed premium payments for life,” says Gardner. “The death benefit and cash value are predetermined and guaranteed, subject to ratings and the company’s balance sheet. Cash value can be accessed through policy loans or withdrawals. This can affect the cash value, death benefit, and even the policy guarantees that the insurance company gives. »

Financing of the premium life. It’s when someone arranges for a bank to pay their premiums and only pay the interest on the bank loan. “Over time, the investor’s cash buildup increases and they can repay the loan to the bank, as well as use available cash for tax-free distributions,” says Gardner. “This strategy acts like another paycheck for your retirement, coupled with Social Security, retirement funds, and outside investments like real estate and stocks.”

Also, says Gardner, if one doesn’t have long-term care coverage, that policy could have a wellness component that if you don’t perform two of the six daily functions, then the funds can be withdrawn to help you with your health matters. “It’s a great alternative for maximizing your 401(k) plan because when you take money out of it, Uncle Sam taxes you,” says Gardner. “I think it’s like a Roth IRA on steroids because of the leverage and non-taxable income when borrowing against their policy.”

Universal life. With this type of insurance, the policyholder can pay premiums at any time, for any amount (subject to certain limits), if the policy expenses and the cost of the insurance cover are Covered. “The cash value will accrue at a stated interest rate, which may vary over time,” Gardner says. “Cash value can be accessed through policy loans or withdrawals, but these can affect the cash value, death benefit and policy guarantees.”

Indexed universal life. Indexed universal life insurance is similar to universal life insurance. Gardner says this gives the policyholder the choice of allocating cash value amounts to a fixed account or a fixed index account. “The amount of insurance coverage can be changed,” he says. “The cash value will accrue at an interest rate declared annually and based on the performance of a stock market index, which may vary over time. In the event of a negative change in the index, your cash value is protected. In this way, it is similar to how a fixed index annuity works: growth potential linked to rising index values ​​and protected in the event of falling index values.

Variable lifespan. As with whole life insurance, you pay a level premium for life. However, neither the death benefit nor the cash surrender value is predetermined or guaranteed. “They fluctuate based on the performance of the investments, in what are called ‘sub-accounts,'” says Gardner. “A sub-account is a professionally managed pool of investor funds to pursue a stated investment objective. You select the sub-accounts into which cash value is to be allocated. This type of hedging has its advantages when you are investing in a rising market, however, you only pay 3-5% mutual fund investment management fees for each sub-account And if the market falls as it did in 2000 and 2008 , your coverage could be significantly affected.

“Permanent life insurance is attractive for reasons other than lifetime coverage,” says Gardner. “The cash value and savings components can be tools for building tax-efficient wealth and tax-deferred retirement income.

Mark S. Gardner ( is president of Retire Well Dallas, a wealth management firm that helps families plan before and after retirement and specializes in tax advantage strategies. He is a member of Ed Slott’s Master Elite IRA Advisor Group℠, which focuses on advanced retirement account strategies, estate planning techniques, and new tax laws, including tax reduction methods for retirees. as they transition to the distribution phase of retirement. Gardner is certified in the CSSCS (Social Securities Claiming Strategies) designation. He spent 23 years at Bear Stearns, overseeing the local wealth management department and managing over $175 million for high net worth individuals and families.