Permanent Life Insurance Details

Permanent insurance is both life long protection and savings.
Benefits are:

Conservative supplemental retirement income with equity growth but without the downside risks.

Long term care coverage is built into the policy or the cash value can serve as the income source to fund care.

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Provide at least a five fold multiplication of tax-free money to the children, estate or charity. 

Pay for estate taxes.  Estate taxes can take away 40% or more of an estate.  The life insurance benefits can pay this tax bill.

How the cash value grows in permanent insurance policies.

There are three general methods in which the cash value can grow and prevent losses.

a.  Whole life grows the cash value through company dividends.   A 0% floor acts as a "stop loss" to prevent loss of cash value.

b.  Indexed Universal life accumulates interest by the growth of equity indexes  (Dow Jones, S & P 500, Russell 2000).    Nothing is invested into equities but the indexes are used as a barometer for how much interest the cash value will gain for that period.  If the index is negative, a 0% floor negates any loss in cash value. 

c.  Variable life is directly invested into stocks/mutual funds.  Both gains and losses are realized as there is no 0% stop loss.   

Indexed Universal Life Example

Sean 45, has a $500,000 Indexed Universal Life Policy

Sean contributes $1,000 per month for 20 years for a total of $240,000.

The cash value (Blue Line) averages about 5% a year in compounded interests. (Orange Line)

In the "negative S & P 500 years" he does not lose cash value due to the 0% floor.   

The curve is flat in those years.

At age 75, Sean will have about $620,000 in cash value plus $500,000 in original benefits. 

If Sean were to pass away at age 75, his family would receive tax free $1,120,000.

$620,000 + $500,000 = $1,120,000

Cash Value+Death Benefit = Total Benefit

Cash Value

Percentage Gain

0% no loss

0% no loss

0% no loss

0% no loss

Accessing cash value

You can access the cash value in a life insurance policy in three primary ways at any age.

1.  Withdraw the cash value.

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2.  Borrow the cash value.

3.  Surrender or give up the policy and take all the cash out.