Permanent Life Insurance
Permanent life insurance means coverage to age 120 and the premium creates a cash value. Unlike term life insurance which provides coverage for a certain number of years like 10, 20, or 30 years, this policy provides you with coverage until you pass away. It offers the ultimate peace of mind.
Most people immediately think of whole life. Until 1979, the consumer only had two choices: whole life or term to choose from. Then E.F. Hutton changed the insurance world with Universal Life. Universal Life pegged the growth of cash value on the performance of the insurance company. In those years of high interest rates, the cash value grew at 9, 12 and 14% a year. But those high-flying years
didn’t last. Interest rates came down and policies were only crediting 4-5%.
Over the years, insurance company actuaries have improved Universal Life policies. Today, we have the best of all worlds, Index Universal Life (IUL) policies. The cash value in these policies is tied to the performance of the S&P 500 Index or the NASDAQ 100 Index. Unlike stocks or mutual funds that can have losing years like 2022, when the S&P 500 lost 19.44%, or 2008, when it lost 38.49%, today’s IUL has a floor of 0%. What this means is that policyholders did not lose a penny those years. Their gains were locked in.
The cash value growth in an IUL receives whatever gains the Indexes have for that year up to a cap rate. For an example, if the S&P 500 Index has a banner year earning 18%, the consumer will receive whatever cap rate their policy has for that year. Several companies we deal with, have cap rates of 12-14%. This means, the policyholder will receive 12-14% for their policy year. Those earnings are locked
in. If the following year has a loss, the policyowner does not suffer it. They simply have no gain that year.
In the history of the stock market, there have only been two times when the market suffered three losing years in a row: 1929, 1930, 1931 and 2000, 2001 and 2002. In fact, the S&P 500 Index has only seen two losing years in a row, four times. Index Universal Life policies have all the upside of the S&P 500 and NASDAQ 100 with no downside. That is why IUL is the policy of choice for bank financed life insurance.