How Permanent Life Insurance Can Help Protect Your Assets And Your Loved Ones
There are a number of reasons Permanent Life Insurance can be used, but the main reason is for the death benefit.

Using permanent life insurance will protect your family IF you unexpectedly pass away, or if you want to build a legacy WHEN you pass away of expected old age. 

Permanent life insurance can also grant you access to the death benefit for terminal illness, chronic illness, and critical illness. Coverage in a life insurance policy for these illnesses is called LIVING BENEFITS.

In addition to LIVING BENEFITS, a Whole Life insurance policy also guarantees a portion of your premium will grow at a 4% rate, plus a non-guaranteed dividend payment which will increase the growth of your cash value. 
You can also use an Indexed Universal life insurance policy where a portion of your premium can participate in the gain of an index and is protected from loss due to negative returns in the index.

Both Whole Life and Indexed Universal life insurance can provide this protection to your assets and your loved ones. So lets take a closer look at how these policies can help.

Protection With A Whole Life Insurance Policy

Since Whole Life insurance policies can last as long as you live, it will provide peace of mind by knowing the people that depend on you the most will not lose the assets you worked so hard for; your home, investment properties, a business, or recovering taxes that will be paid on retirement plans like 401k.

Whole life provides contractual guarantees like the 4% rate on a portion of your premium payment.
This part of your premium is called the cash value portion of your Whole Life insurance policy, the other portion goes towards the mortality and expense risk charge.

It also has a level premium which means your premium will not increase or decrease.

The death benefit is the part of your premium that is paid to your loved ones generally tax free when you die and can be accessed for terminal illness, chronic illness, and critical illness.

Terminal illness, chronic illness, and critical illness are called living benefits.

The part of your premium that is placed into the cash value will receive the guaranteed 4% rate, plus the non-guaranteed dividend payment that will help grow the value of your cash. This increased value will purchase more life insurance coverage which will increase the death benefit. When the death benefit increases, the more coverage you will receive in living benefits, and your loved ones will receive a larger death benefit.

The cash value portion of this policy is looked at as an alternative to a savings account. Instead of having your money in a savings account that is paying you .25% to .50%, you are guaranteed a 4% rate, plus a non-guaranteed dividend payment that will increase the cash value more than 4%.

Protection With An Indexed Universal Life Insurance Policy

Indexed Universal life insurance is similar to a Whole life policy where they both offer a death benefit, living benefits, as well as cash value accumulation. 

The premium on an IUL has the potential to increase if it is designed properly. It is crucial to work with an agent that designs these policies to fit the clients needs and with companies that specialize in this product.

This policy is cheaper than a Whole Life policy, offers you a fixed account that is adjusted according to the interest rate environment, and an option to participate in a number of indices. 
  • Annually Adjustable Fixed Account - Depending on market conditions this rate will be applied to the cash value portion in your policy. There is a guaranteed rate, but it is usually very low depending on the company that is offering this product. Some companies offer a higher guarantee than others, but the growth in the cash value portion is not as high as a company that offers a lower guarantee. This is due to cost. 
The theme here is, the more guarantees the more expensive the life insurance product. Whole Life has more guarantees so it costs more. This also applies to Indexed Universal life insurance policies, the higher the guaranteed fixed rate, the higher the cost of the policy.
  • Participation In A Number of Indices - This is a unique part of an IUL (Indexed Universal Life) insurance policy. The portion of the premium that is in the cash value portion in your policy, tracks the performance of a particular index, for example the S&P 500.
If the index increases by 10% your cash value in your policy will also increase by 10%. However! If the index returns a -10%, your cash value will lose nothing. You are protected by a zero floor. 

Your cash will never lose value below zero, but your policy will still be charged an annually renewable life insurance cost and expense.

Index Universal Life Zero Floor
This chart gives a visual of how the zero floor protects your cash from loss when it participates in an index within an IUL policy. 
  • The blue line represents the value of the index when the Indexed Universal Life insurance policy was issued, which starts at $100. It is also the zero floor, which means your cash value will never go below $100.
  • ​The green line is the increases and decreases of the index the cash is participating in.
  • ​The white portion above the blue line is when the index increases above the zero floor. This is the area where your cash will increase in value due to positive performance in the indices.
  • The red portion is when the index goes below the zero floor. This is the area your cash is protected from. Your premium will never lose value due to market loss.
The zero floor protection is possible because you are only participating in the index and not investing your cash in the index. You are not buying anything in the index.

Some companies also give you the option of locking in your rate. You can call, or sign-in to your account and lock in your rate. If you place a lock request for when the indices reach $110, your rate is locked in and the cash value is increase by 10%. For example, your index value was $100 when your policy was issued and your rate was locked in when the index value reached $110. $110 - $100 = $10 increase that is credited to your cash value portion of your policy. 
The chart below shows the historic positive and negative returns of the S&P 500 from 1928 to 2021. In an Index Universal Life insurance policy your premium that participates in the index is protected from the years that are in the red portion of the chart. Your premium is either in the green or at zero, but never in the red. This chart is provided by and is interactive on their site. 
S&P 500
Parsons Life Insurance Services contacts it's clients and gives them an update on how well the indices are performing and if they would like for us to make a request to lock in the rate on the their behalf. 

Which One Is Right For You?

That all depends on how you want to protect yourself. We know that both Whole Life and Indexed Universal Life insurance provides
  • Guaranteed death benefit as long as the premium is paid
  • ​Living benefits
  • ​Access to your cash value accumulation tax free through withdrawals and/or loans when you need it for emergencies, supplementing retirement, or purchases
If you want to be conservative with your approach to providing long lasting steady protection with a

  • Savings account alternative that guarantees a 4% gross rate coupled with a non-guaranteed dividend payment that will increase cash value growth higher than the 4% rate
Then Whole Life Insurance can provide that protection.
If you want to be moderate in your approach to your long lasting protection needs with the possibility of higher gains than a conservative approach using a Whole Life policy
  • Participation in an Index strategy that has the protection of a zero floor and a moderate return depending on the performance of the index like the S&P 500, or if you want a Fix Rate depending on the market environment 
Then Index Universal Life Insurance can provide that protection.

HOW Can I Help You?

My name is Mohamad Bibi, I am a independent life insurance agent who advocates on behalf of my clients to obtain the lowest price, meet their needs, and treat them with dignity and care. I work for my clients, not the insurance companies. After completing a quick assessment of my clients needs, I go to work on finding the right product, with the right insurance company, at the right price. I put my clients needs above all else.

Mohamad Bibi 09/27/2021

Information in this blog are opinions and should not be taken as legal, accounting, or financial advice.
Set an appointment for an evaluation for your Permanent Life Insurance needs.
Parsons Life Insurance Services, Insurance Agent, San Jose, CA