Permanent Life Insurance

Cash Value Life Insurance as an Asset Class

Permanent life insurance is a type of insurance that provides coverage for your entire life and builds cash value over time. Cash value is the amount of money that you can access from your policy while you are alive.

Permanent life insurance can be used as an asset class, which means that it can be part of your investment portfolio. It has some unique benefits that other assets do not have, such as:

  • Tax advantages. The cash value grows tax-deferred, which means that you do not pay taxes on the growth until you withdraw it. You can also access the cash value tax-free through loans or withdrawals, as long as you do not exceed the amount of premiums paid into the policy.
  • Protection. The death benefit is guaranteed and paid to your beneficiaries tax-free, regardless of market conditions. It can also be used to cover estate taxes, debts, or other expenses that may arise after your death.
  • Flexibility. You can adjust the amount of premiums, death benefit, and cash value according to your needs and goals. You can also use the cash value for any purpose, such as retirement income, education funding, business opportunities, or emergencies.

You can think of cash value life insurance as a marriage between Life Insurance and a ROTH IRA, but without the contribution limit. However, permanent life insurance also has some drawbacks that you should consider, such as:

  • Long term commitment. In order rely your permanent life insurance as a viable retirement income stream, you have to commit to covering the cost of insurance and building the cash value accumulation consistently for the first 10-15 years before it can be self sustainable.
  • Risk. Similar to your 401k, the cash value is not guaranteed and depends on the performance of the underlying investments or the interest rate declared by the insurance company. Most of these plans have a 0% floor so there are safeguards built in to help shelter you from large losses.
  • Complexity. Permanent life insurance has many features and options that can be confusing and difficult to understand. You have to choose the right type of policy, such as whole life, universal life, or IUL, and the right amount of coverage, premiums, and cash value for your situation.

Therefore, before you decide to use permanent life insurance as an asset class, you should consult with a financial professional who can help you evaluate your needs and goals, compare different policies and options, and design a strategy that suits you best.

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