The organization representing state insurance commissioners is promoting life insurance as an “overlooked” potential source of immediate funds.

Adam Hamm

“In tough economic times, people look everywhere — an IRA or 401(k), credit cards, even under their mattress — for emergency cash,” according to a National Association of Insurance Commissioners statement.

A recent NAIC survey found that 63% of consumers have life insurance, yet it is often forgotten as a source of revenue.

“When thinking about everyday finances, life insurance is not top of mind for most Americans,” said Adam Hamm, NAIC vice president and North Dakota insurance commissioner, in the statement. “According to our survey, more than two-thirds of consumers don’t know some types of life insurance include a cash value, and nearly half don’t think of life insurance as an investment option.”

People can take loans against policy values, or they can cash in a permanent life policy, which enables them to immediately obtain the full accumulated value of the policy, according to the NAIC.

For Americans worried about the recent stock market volatility, permanent life insurance may present a lower-stress way to put aside money for the future, according to the NAIC. The dollars that go into the investment channels of these policies (beyond the costs of the insurance) accumulate interest each year. And insurers typically guarantee a minimum return of at least t3% to 4% per year.

Almost half of respondents to the NAIC survey said low risk and tax-advantaged growth were priorities when investing in today’s volatile market and both are features of some permanent life insurance policies. Additionally, 65% of the NAIC’s survey respondents did not know some types of life insurance include a dollar amount that is guaranteed to increase in value and may provide tax benefits.

 

4 Responses

1. William Says:
   January 6th, 2012 at 11:26 am

   Re: “… nearly half don’t think of life insurance as an investment option.” Are you kidding me? The NAIC said that? Life insurance is NOT an “investment” option. How many times have we agents been warned that we are not to position life insurance as an investment vehicle or a retirement plan? The cash values are primarily there because the carrier has to overcharge for coverage in the early years to provide level premiums to maturity. Unpaid interest on loans is added to the loan principal, and at 8% (typical loan interest), that can really erode cash values over time. Eroding cash values results in policy value (death benefit) instability. Withdrawals, if allowed, permanently reduce death benefit. And, “cashing out” a policy could trigger an unexpected income tax event, especially if there are loans outstanding.

   Life insurance was given all kinds of tax breaks to encourage people to buy it to provide financial resources to dependents of the primary bread winner of a family in case of premature death. Over the years, carriers have hired attorneys and tax experts to find reasons to sell this valuable financial vehicle for reasons for which it was never intended! No wonder the IRS and Congress are continually looking for ways to tax the inside buildup of cash values.

   A source of funds for emergencies with quick payback, yes. An “investment”, no.

2. Lawrence Fuller Says:
   January 9th, 2012 at 10:08 am

   Would someone please forward this article to Mr. Dave Ramsey, and Ms. Susie Orman?

3. Milton Jones, CLU, ChFC Says:
   January 13th, 2012 at 2:09 pm

   It’s good to see someone associated with NAIC recongizing the living benefits of cash values. After decades of having the regulators beat up on us for the product for selling savings/accumulations.

   Milton Jones, CLU, ChFC

   Note to William…. what “termite” group are you part of?

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