“The market always bounces back.” “Own your age in bonds.” “Only risk what you’re willing to lose.” These are all common investment sayings you may have heard, possibly even from your own financial advisor. However, you may not have heard your advisor quote this one before: “Buy term and invest the rest.” 
This phrase, referencing term life insurance, is commonly used when young adults inquire as to which type of life insurance they should purchase in order to financially protect their new and growing families. However, could it be possible that its value for older, more established investors has been overlooked? Our team believes that this simple quote is full of sage financial advice. Life insurance should be a valued aspect of your retirement portfolio, when selected with the right advice from an experienced financial advisor.
Let’s explore below the detailed answer to the question, “Does term insurance have value as an investment alternative?” The brief answer is a resounding yes: term life insurance has value as an investment alternative—and should be included in your retirement portfolio when implemented properly by an expert wealth advisor.
Does Term Insurance Have Value as an Investment Alternative for Retirement?
Modern investors must use the best tools available for building and protecting wealth and assets. While many people consider the tax-free death benefit provided by permanent coverage as a viable investment alternative, the truth is that any vehicle that produces a return greater than the amount invested into it also offers an internal rate of return.
One of the most often overlooked avenues for wealth maximization can be term life insurance. Naturally, with such low premiums, the rate of return can be amazing depending on the timing of a death claim. Sometimes, death occurs early within the policy term, but other times death occurs after the term has expired. That is why clients should consider converting their term policies to permanent before that option expires.
Term life insurance, as the name suggests, will pay your beneficiaries a set amount of money, tax-free, if you pass away during the active term of the policy. Life insurance is not often considered an investment alternative for retirement by traditional financial advisors. It does, however, provide a tremendous tax-free benefit to your beneficiaries that cannot be ignored.
Insuring your portfolio allows you the freedom to adhere to the investment strategy you want without the concern of dying at the bottom of the market.
Term can be useful to cover a finite need over a specific time period, or to cover a specific financial obligation that will be a burden if left unprotected. It can also be used to protect an investment portfolio that will be exposed to market risk until a specified date. Insuring your portfolio allows you the freedom to adhere to the investment strategy you want without the concern of dying at the bottom of the market. Although term insurance is not always the solution for longer term needs, more generally, there are pros and cons to using life insurance for estate planning. We feel both term and permanent forms of coverage like Universal Life have a place in overall planning.
One of the main benefits of term life insurance is its affordability as its costs are typically lower than other insurance options. This allows you to invest a larger percentage of your retirement savings into traditional investment vehicles that may have otherwise been inaccessible. It also offers you financial peace of mind knowing that if something were to happen to you before your retirement, your family will still be guaranteed a sum of tax-free money, provided you structured your term insurance policy after consulting with an expert advisor.
Does Term Life Insurance Offer Security from Volatile Retirement Investments?
Let’s consider the following scenario as a case study on whether or not term life insurance has value as a retirement investment alternative to market-based investments: It’s 2007, and you are a year away from retirement. You were heavily invested in the stock market and are now watching your retirement savings disappear after the nationwide economic downturn. Fortunately, you talked to an advisor years ago about purchasing a term life insurance policy and secured coverage.
Now, you are experiencing poor health. Suddenly, your retirement investment strategy is in jeopardy and you are seriously concerned about the financial security of your family if you were to pass away. Thankfully, you purchased term coverage with a conversion option which allows you to convert to a permanent policy based on your good health from years ago.You have comfort in knowing that you have a tax-free death benefit in place to protect your family.
While no one wants to consider this worst-case scenario, without putting some guarantees in place alongside your investment portfolio, your family’s financial future—and the legacy you have spent years working for—are at the mercy of the markets. Many recent retirees know from experience just how devastating this can be.
Term life insurance, on the other hand, offers financial security greater than investments that are based on volatile and unpredictable markets.
Term life insurance, on the other hand, offers financial security greater than investments that are based on volatile and unpredictable markets. With the help of a trusted insurance advisor knowledgeable in wealth maximization and estate planning strategies, you can guarantee that your family would receive a set amount of tax-free income were you to pass away within the policy term established at the time of purchase. Term life insurance is not only a tremendous way to provide tax-free benefits to your family during the specified term, but also a predictable way to plan financially for your legacy until such time that more permanent insurance solutions become affordable.
The Unexpected Value of Life Settlements for Life Insurance Policy Holders
There are many benefits to owning a life insurance policy as a valuable component of your retirement savings portfolio. One such benefit is life settlements for wealth creation and preservation. Most permanent, and even term policies can be candidates for life settlement.
A life settlement option allows you to sell your life policy to an institutional investor who is looking to purchase policies on the open market. This is a complicated process that our team of expert life insurance advisors has helped many clients maneuver with extremely favorable results. As the policyholder, you can choose from several options, such as a cash up front, a paid up death benefit that requires no further premiums in order to provide a payout to your heirs, or a healthy balance of the two. Only a knowledgeable advisor will be able to advise you as to how to properly construct your life settlement contract so that you can continue to enjoy the financial protection your current policy affords your family.
Only a knowledgeable advisor will be able to advise you as to how to properly construct your life settlement contract so that you can continue to enjoy the financial protection your current policy affords your family.
Additionally, if you originally purchased your life insurance policy to help offset estate taxes but now find that the tax code has swung in your favor, a life settlement may also be in your best interest. If you are unsure as to how your current or future life insurance policy is affected by taxes, an expert can help you assess your potential tax liability as it relates to both paid claims and life settlements. These are common questions and often surface when discussing life insurance proceeds and whether or not they are subject to estate tax.
If you are considering term insurance as a valuable investment alternative for your retirement savings, it is time to contact a trusted advisor who can help you determine the best overall financial strategy for your unique situation. Many financial advisors focus their efforts on the stock market, while my team of expert insurance advisors takes a more comprehensive approach when it comes to retirement planning and overall wealth management. Don’t allow what your financial advisor may not know to hold you back from truly optimizing your estate, now and for your family’s future.
The expert team at Howard Kaye Insurance has been providing life insurance and estate planning services for over 55 years. We specialize in leveraging life insurance as a vital component of your financial portfolio. Contact us today at 800-DIE-RICH to discuss ways of maximizing your wealth via life insurance that your financial advisor may not have informed you about.
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