Life Insurance Is Not What It Used to Be
January 9, 2013 
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It’s Not Your Parent’s Kind of Life Insurance
Permanent life Insurance, like medicine and technology, has evolved to the extent that it hardly resembles what it looked like just a decade ago. The basics have remained the same, a death benefit, premiums, and an inside cash value that accumulates over time.
What has dramatically changed is the way in which cash values earn returns. The latest generation of “index linked” policies combines the security of guaranteed cash values with interest linked to a stock market index. Let’s revisit the changes that have occurred over the past decade.
The history of the change goes back into the mid 1990’s in the annuity industry. Prior to this time, investors interested in tax deferred annuities had two choices available. Fixed annuities offered a guaranteed principal with interest rates determined by the insurance companies. Variable annuities used market based sub accounts, similar to mutual funds which offered higher growth potential but no guarantees to the principal.
Evolution of Life Insurance
• Term Life
• Whole Life
• Universal Life
• Variable Universal Life
• Fixed Indexed Universal Life (FIUL / IUL)
The first Fixed Indexed Annuities (FIA) offered principal guarantees like fixed annuities while the return was tied to a market index like the S&P 500 or the Dow. The expectation was that over time, the indexed linked returns would outperform fixed rate annuities with no risk to losing principal.
The history of cash value life insurance policies has been quite similar to that of annuities. The original form of whole life insurance offered fixed premiums and guaranteed cash values which grew over time. In the 1980’s variable universal life policies were introduced that tied the growth of the cash values to mutual fund based sub accounts. Returns were potentially higher but without any guarantee of principal. However, market downturns caused investors to be wary of losing the cash values of life insurance as this could put the death benefit at risk.
Like the evolving of the Fixed Indexed Annuity, Indexed Universal Life (IUL) offers unique advantages to the policyholder. Premiums are flexible which allow investors to increase deposits into the cash value side without increasing death benefits. Sophisticated market indexes credit higher returns than similar equity indexed annuities. Principal guarantees offer protection against market losses. Truly, this “state of the art” innovation has made life insurance a legacy planning vehicle never seen before.
Find all of this a bit confusing? That’s where an experienced professional can help you sort through all the complexity and guide you. Talk with your local Retirement Life Solutions Specialist. Make sure you ask lots of questions to learn both the pros and cons of any policy you are considering.
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