We are experiencing turbulent economic times recently. Once you combine the volatile equity markets with the historically low interest environment, people are looking for a safe place for their savings.
The traditional solution for one's 'safe money' have included:
- Certificate of Deposits i.e. CD's
- Annuities - primarily fixed or indexed annuities due to the guarantees
- Treasury Bonds
As alternative to the above solutions, you may want to considered a Single Premium life insurance policy (by definitions is a Modified Endowment Contract, "MEC") as part of their portfolio. With the economic conditions we currently face, the Single Premium strategy may out-perform traditional solutions.
Before we dive into how Single Premium Life insurance works, lets look at the traditional approaches.
Certificate of Deposit
Certificates of Deposit (CDs) offer low risk with little reward. With a CD, generally you won’t expect a return higher than 1 or 2%. However, the longer the term length—the longer you commit to keeping your money in the account and thus with the bank—the higher the interest rate you’ll earn.
By choosing the right type of CD and avoiding withdrawal penalties, you can earn a decent return on your money, all while having your savings backed by the federal government.
Fixed Deferred Annuities
Fixed Deferred Annuities are similar to CDs, however, fixed deferred annuities are issued by insurance companies and are not insured by the U.S. government. They are backed by the financial strength of the issuing insurance company, regardless of the amount.
Fixed deferred annuities also provide you with a guaranteed minimum interest rate, regardless of market conditions.
Treasury Bonds and Investment Grade Bonds
When looking for safe money options. Some people will look to government or investment grade bonds. While these can sometimes provide a decent rate of return they can still have significant volatility. Bonds are debt instruments issued by large corporations and government entities. Typically the issuer of the bond receives a lump sum payment from the investor up front and pays the investor a stated interest rate until the maturity of the bond. When a bond matures the investor gets back par or base value of the bond.
Bonds may seem risk free however there are some significant challenges if you need the money prior to maturity of the bond. Bond pricing typically has an inverse relationship with interest rates. Meaning when interest rates raise bond prices drop. Also the longer the maturity of a bond the more its price is affected.
Why Single Premium Life Insurance?
Single premium life insurance, as the name implies, is life insurance that only requires a one time lump-sum payment. For this payment, your family is protected with the death benefit, and you have access to the cash values. The death benefit will last as long as you do and is therefore considered permanent life insurance. The amount of death benefit will depend on the size of the premium payment, the age and health of the insured.
The cash value growth of single premium life will not be subject to income taxes. The rate of growth will depend on the type of policy: universal life, indexed universal life, and whole life. They only differ in how the policy receives either investment returns and/or interest credits.
Another big advantage of single premium life policies are the 'living benefit' rider(s). If you are diagnosed with a critical, chronic or terminal illness these riders will allow you to receive a lump sum payment i.e. a prepayment of your death benefit.
What’s the point?
Single Premium Life Insurance provides tax-deferred accumulation of cash values, access to the death benefit if you qualify for a living benefit rider, and money for you family when you die. It helps address the concerns of having sufficient resources both during and after your lifetime.
If you opt for a single premium indexed life policy, it may provide a higher rate of return and offers easier access to funds than any of the aforementioned products. At the same time, the floors offer substantial downside protection. A single premium IUL is the clear winner because it provides:
• Living Benefit Riders
• A Substantial Death Benefit
• Liquidity in Access to Funds
• The Highest Rate of Return
Contact Advisor’s Resource Company Today
Developing an insurance plan doesn’t have to be complicated. Let our team assist you in bringing the best policies to your clients so that they can have peace of mind.