Janet Foust

How can a Life Insurance Policy be a good investment?

This article is Life Insurance and how insurance may be a good thing to think about when you are considering the state of the economy and another way to diversify your portfolio.

With a lot of the news surrounding the economy and how bad it is, I thought it might be a great time to discuss life insurance and how it might be time to really consider it as a way to diversify your portfolio.

A dear friend of mine forwarded a link to a discussion on CNBC about how life insurance is a good investment. Now, I have to admit, I have always known that a life policy with a cash value option is a good product to have in your portfolio. I was really happy to see someone who agreed with me.

Here is the link:

http://www.cnbc.com/id/15840232?video=697206891

Whether the economy is good or bad, you cannot go wrong with a life policy that allows you to save in a cash value account. Why? Because your cash value savings is tax-free! Yes, this is one of those very few places that the government still allows us to save tax-free. With a guaranteed interest rate of 2-4% on most of these life policies, if you calculate in the fact that you are not going to pay taxes on the GAINS, it's a win-win situation.

Why is tax-free savings a good thing? Here is an example of how taxation works:

If you take a dollar and double it 20 times and minus the tax, you will have about $28,466 left.

But, if you take that same dollar and double it 20 times, without tax, you will have about $1,048,576!

This example should show you the power of saving tax-free.

Here is a great explanation of EIUL that I found on line:

Equity indexed universal life insurance offers a unique combination of affordable life insurance with the ability to accumulate cash values that grow with the upward movement of a stock index without the normal downside risk associated with the equities market. Combine the benefits of upside cash value growth potential with the tax benefits associated with life insurance and a minimum guaranteed interest rate and you have an optimum vehicle for accumulating cash.

The important part to understand is that you are participating in the market, BUT you are not going to be participating in the downside risk. What that means is you will enjoy the gains, but if the market goes down, your cash value does not go down in the slightest. You will keep all your gains and not risk a dime.

I recommend that everyone should at least look into an EIUL policy as a way to diversify your investment portfolio without much risk. There are many things you need to know about an EIUL policy, and your insurance agent can help you determine if it is right for you. Some of these policies can be expensive to purchase. There are also limits to how much you can put in this account each year, but the good news is, the amount you can save within the policy is always more then the annual limit on an IRA. Also remember, this is tax-free savings, not tax deferred.

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