To most people, life insurance only becomes valuable when the policy pays out, providing cash for others. But some are increasingly using policies as an investment vehicle, pouring in money to see it accumulate tax free and save securely.
While nearly anyone can pour cash into their policy, the very rich are using it to squirrel away millions of dollars safely with some tax benefits.
Some advisors say whole life insurance can be viewed as a separate asset much the way mutual funds, bank accounts and stocks are.
“Low rates and tax free benefits of these policies are attracting people to use this as an asset class,” Tom Archer, chairman of The Archer Financial Group, a life insurance advisor in Melville, said. “It’s got tremendous tax benefits. Cash grows tax free. They use it for accumulation and retirement income.”
Life insurance policies typically have a cash account into which money is deposited from premiums to pay the cost of insurance.
But additional cash also can be deposited in permanent life insurance accounts, continuing to accumulate and serving as retirement income and a sort of savings account.
“When you pay your premium, a portion of that goes to pay the insurance costs,” said Lawrence Sprung, president of Mitlin Financial, a Hauppauge-based wealth management firm and insurance brokerage. “Any excess goes into a cash value account that will accumulate over time. Some people overfund.”
The decision to use policies as an asset for the living, some say, is a big change from the days when it was all about the payout.
“A shift in focus is occurring where life insurance is no longer exclusively thought of as a gift for someone else, but also an asset that can be used to provide a significant benefit to the living,” said Henry Montag, principal of the TOLI Center, in Huntington Station, which evaluates the performance of policies.
May 20-26th, 2016
Long Island Business News