FOR IMMEDIATE RELEASE
LIFE INSURANCE MAY BE UNTAPPED RESOURCE IN TOUGH
ECONOMIC TIMES
New survey finds more than half of Americans don’t think of
life insurance
as an emergency financial asset
WASHINGTON, D.C. (Jan. 4, 2012) — In tough economic
times, people look everywhere — an IRA or 401(k), credit cards, even under
their mattress — for emergency cash. But according to a recent survey by
the National Association of Insurance Commissioners (NAIC), many consumers
overlook life insurance as a potential source of immediate funds. And, few
are aware of the investment features some policies offer.
“When thinking about everyday finances, life insurance is not top of
mind for most Americans,” says NAIC Vice President and North Dakota
Insurance Commissioner Adam Hamm, who chairs the NAIC Life Insurance and
Annuities Committee. “According to our survey, more than two-thirds of
consumers don’t know some types of life insurance include a cash value, and
nearly half don’t think of life insurance as an investment option.”
The NAIC survey found that 63 percent of consumers have life insurance.
There are two main types of life insurance: term and permanent. A term life
insurance policy pays if the insured dies during the “term” of the
policy. Permanent life insurance, the type of policy that offers investment
features, combines the death benefit coverage of a term policy with the
investment component that can build cash value over time. Some permanent
policies also include provisions for policyholders to access money
immediately for any reason.
Life Insurance as a Source of Emergency Cash
With permanent life insurance policies, a portion of the money you pay into
your premium goes into a cash value that grows over time, and if managed
correctly, may include tax benefits.
“If you own permanent life insurance, you may be able to take out a loan
against the value of the policy, provided you have been paying premiums for
a pre-determined length of time,” says Hamm. “There are no requirements for
using these funds and the interest rate on this loan may be cheaper than
borrowing against a 401(k) or maxing out a credit card. There also may be
tax benefits, since the cash from this type of loan typically is not
considered income by the IRS.”
Another option for quick funds may be to cash in a permanent life
policy, which allows you to immediately retrieve up to the entire
accumulated value. But doing so should only follow careful consideration
because life insurance premiums increase with age. This option is most
viable for individuals who already have sufficient term life insurance or
who no longer have financial dependents.
Life Insurance as a Financial Tool
For Americans worried about the recent stock market volatility, permanent
life insurance may present a lower-stress way to put aside money for the
future. The dollars that go into the investment channels of these policies
(beyond the costs of the insurance) accumulate interest each year. And insurers
typically guarantee a minimum return of at least three to four percent a
year.
Almost half of respondents to the NAIC survey said low risk and
tax-advantaged growth were priorities when investing in today’s volatile
market and both are features of some permanent life insurance policies.
Additionally, 65 percent of survey respondents did not know some types of
life insurance include a dollar amount that is guaranteed to increase in
value and may provide tax benefits.
With the value of retirement accounts down, permanent life insurance
policies that build cash value may be a way to add stability to a financial
portfolio and accumulate funds over the long-term. These policies also can
offer tax advantages to small business owners or individuals who have maxed
out their qualified retirement plan contributions.
Permanent Life Insurance Options
There are four types of permanent life insurance — whole, universal,
variable and variable universal. Unlike term insurance, all permanent
policies remain in place as long as the premium is paid. They also all have
a cash value component that increases over time, and allows the owner to
borrow against that cash value. Below are the main differences between
these permanent policies:
- Whole life insurance policies offer a fixed
premium for the duration of the policy, guaranteed annual cash value
growth, and a guaranteed death benefit. They do not provide investment
flexibility and it is not possible to change the policy coverage once
established.
- Universal life
insurance is more flexible than whole life insurance, letting the policy holder
determine the amount and timing of premium payments (within certain
limits) and adjust coverage levels as needs change. Like whole
life insurance, there is a guaranteed annual cash value growth and no
investment flexibility.
- Variable life
insurance allows the policy holder to allocate funds across stocks, bonds or
money market accounts with different levels of risk and growth
potential. A minimum cash value is not guaranteed because of market
fluctuation and coverage amounts cannot be changed. Variable life
insurance exposes the policyholder to greater market risk, but has the
potential for greater long term returns compared to whole or universal
life insurance policies.
- Variable universal life
insurance is a combination of variable and universal life insurance and is the
most flexible form of permanent life insurance with the ability to
vary premium payments, investments and coverage amounts. It allows
investment in a variety of market products chosen by the policyholder
and may allow policyholders to make tax-free transfers among
investments. Variable universal life also exposes the policy holder to
greater market risk than whole or universal life policies.
Purchasers should consult a licensed investment or tax advisor for
guidance on which permanent life policy best fits their risk tolerance and
investment objectives. For more tips and resources about life insurance,
visit Life.InsureUOnline.org,
or find your state insurance commissioner at http://www.naic.org/state_web_map.htm. |
