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Using Permanent Life Insurance as an Asset Class
Find yourself searching Google for this: Can I use permanent life insurance as an asset class?
Good news: Yes, you can use permanent life insurance as an asset class. But there’s a caveat. Only permanent life insurance policies, the ones with accumulated cash value, are considered assets, and there are two types: whole life insurance and universal life insurance.
Does that mean we recommend both types? Not quite. In fact, we don’t even offer whole life insurance (and you shouldn’t ask for it, either) because universal life insurance is a much better option for today’s opportunities. Here’s why:
Whole life insurance is outdated.
While we help our customers figure out how to use permanent life insurance as an asset class, we don’t offer whole life insurance because it’s little more than a glorified CD. What’s wrong with that? Nothing, it’s just not as dynamic when it comes to using permanent life insurance as an asset class.
Our recommendation? Choose an indexed universal life (IUL) policy or a variable universal life (VUL) policy. Both are options if you’re looking to use permanent life insurance as an asset class. Here’s the major difference between the two.
Indexed Universal Life Insurance (IUL): An IUL allows you to grow high—but safe—returns on your premiums. Growth is typically reflective of the market, except your downside is protected with a minimum floor. Essentially, you’ll never lose money, and your annual returns can grow as much as 8-12%.
Variable Universal Life Insurance (VUL): A VUL allows you to decide how you invest your cash value. Each policy comes with a prospectus with investment options that range from S&P 500 indexes and growth funds to alternative asset classes such as real estate investment funds.
Want to learn more about the types of permanent life insurance? Check out our full guide here >>
Permanent Life Insurance As An Asset Class: The Benefits
So, say you do get a permanent life insurance policy to use as an asset class. What are the benefits?
We’re so glad you asked. Here’s what you can look forward to.
- Growth accessed tax-free. In addition to growing your cash value, your permanent policy allows you to access tax-free growth after a certain period. For most insurance providers, that time frame is 10-15 years after you initiate your policy.
- Tax-free death benefit to people you care about. Permanent life policies also come with a death benefit, so when you lock in your policy that will never expire and continue to pay your premiums, you’ll be able to transfer your wealth to your beneficiaries.
- Economic condition protection (if IUL): With an IUL, your cash value can grow with the benefit of a floor. That way, you never have to worry about losing it all to the market no matter how it performs.
- Growth in the market (if VUL): With a VUL, you’ll get the benefits of choosing how to invest your premiums and then get to experience the market highs exactly as you see fit.
Bonus: This is a great option for college funding.
Unlike other options for saving for college, a permanent life insurance policy has a cash value that can be used for whatever you choose—not just for college. Why is this important? Because you never know what your children will do long-term, and if you’re saving in a 529, you have to use it for school. But what if your kid gets a scholarship? Or what if they decide to start a business instead of getting a degree?
With a permanent life insurance policy, you can start as young as you want (yep, babies can have a policy!) and still get a flexible, tax-advantaged account to grow savings for your kids.
Want more information about how this can work for you? Get in touch with us today >>
Permanent Life Insurance As An Asset Class: By The Numbers
Sometimes it’s easy to see how it all works with cold, hard numbers. Here’s a scenario we can share about how an Amplify customer is using permanent life insurance as an asset class.
SCENARIO: Independent Contractor & Single Parent
- Age of member: 35
- Monthly savings: $431.75
- Brokerage account net return at age 65 with 6% avg growth rate: $369,050.02
- Permanent life insurance net return at age 65 with historical growth rate: $416,402.19
- Total benefit (death benefit + cash savings) at age 65 in a permanent life policy: $516,402.19
Permanent Life Insurance As An Asset Class: FAQs
Have more questions? We’ve got more answers. Dive below to see some frequently asked questions around permanent life insurance as an asset class.
Q: Direct cash withdrawals vs. loans: How does this work?
In a permanent life insurance policy, you withdraw your principal, and then you take out a loan on the rest of your policy, maintaining the tax-free growth status. If you’re familiar with Roth IRA tax status, this is similar, except you can make as much in annual income as you want. You get access to this anywhere between 10 and 15 years after you sign your policy, depending on your carrier.
Q: Can a cash-funded policy be used in a liquidity shortfall scenario?
If you start your policy early—in your 20s or 30s, you can access it from 40-50. Compared to a 401K that you can’t take out until you’re 59.5, there’s more flexibility in this type of savings.
Q: What is the benefit to individuals who have maxed out their tax-advantage retirement plan?
For people who have maxed out their tax-efficient options when it comes to retirement, this is an option for saving and growing. There is a gap in the market for someone who makes over 100K, but less than 1M, where you need expert financial advice on how to optimize tax efficiency and it may cost thousands or more to work with a financial advisor. Instead of investing all of your money on your own where you may be subject to a boatload of taxes down the line, work with Amplify to see how permanent life insurance can help you save tens of thousands on your future taxes and supplement your overall financial strategy.
Q: What should I get? IUL vs. VUL
IUL vs VUL is a common question for folks interested in permanent life insurance. The choice is dependent on whether you want consistent returns from tried-and-true index funds with no potential for losing value or the opportunity to invest your cash value into higher-risk stocks and bonds with unlimited upside but also a possibility of loss. How much risk you're willing to take on determines how you'll view VUL insurance pros and cons and which policy is right for you. In either scenario, you're looking at tax-free growth!
Q: What are the benefits of an indexed universal life insurance policy vs a Roth IRA?
It comes down to two things: income and risk. Roth IRAs are highly regarded investment and savings tools for those who make under a certain amount of money every year. The current Roth IRA income limit is anyone who makes $125K a year or less. For the majority of us, that income limit has no effect but when you take into account that the max deposit you can add to your Roth IRA is only $6K, then it starts to get a bit more limiting. The other area of difference is risk, unlike an IUL policy, market fluctuations can reduce your investment. Like a Roth IRA, an IUL has tax-deferred growth but there are no income restrictions, no deposit limits, and since they're tied to index funds, guaranteed to have a minimum of 0% returns, meaning you never lose money.
TL;DR: Permanent Life Insurance As An Asset Class
Here are three takeaways you need to remember about permanent life insurance as an asset class, even if you remember nothing else:
Takeaway #1: Permanent life insurance differs from whole life and a permanent life insurance policy gives you the opportunity for growth while also protecting your downside, whereas whole life insurance policies are more or less a CD
Takeaway #2: Get access tax-free to your cash value starting 10-15 years after signing your policy. Use the cash, then also have the ability to take out a loan against your policy if you need more, without interest.
Takeaway #3: Find additional ways to save more for retirement, especially if you’ve maxed out of your tax-advantaged retirement plans.
In conclusion: Permanent life insurance as an asset class is a good idea. Amplify can help.
For those looking to make smart use of their money, a permanent life insurance policy with Amplify is your best option. Get a quote in five minutes today.