Mar 05 2009
How to Take Advantage of Term Life Insurance Agreements
There is a notion in life insurance which can be simply summarized as follows; “buy term life insurance , take the money you have saved in comparison with a similar whole life policy, and invest that money”. The basic idea here is that as an alternative to buying a whole life policy with an endowment component, the purchaser invests in term life insurance as a protection against the unforeseen and then employs the money saved relative to an endowment policy in investments which generate a significant return.
Of course, to make such a scheme successful requires that the purchaser has the fortitude to carry through with the commitment and find an investment which is capable of producing a higher yield than that produced by an insurance institution. Sadly, this is a skill that few individual investors are able to manifest, particularly over the long run. Occasionally, there will be times when all investments are rising and individual investors do well. However, such circumstances are often transitory, and often what the market has given the market will take back, sometimes resulting in substantial losses.
Recognizing this difficulty, a number of insurance products are available worldwide which simultaneously yield a combination of insurance coverage and long term financial gain. Such products, which originated with policies offered by Equitable Life Assurance Society in 1976, are known, in the United States, as ‘variable life insurance’. If you appreciate the wisdom of the phrase “buy term life insurance, take the money you have saved in comparison with a similar whole life policy, and invest that money”, this is certainly a product worth considering.
Such products which combine investment and protection offer freedom to their purchasers in choosing the proportion of their premiums that are coupled to investment results. There are a variety of investment vehicles which can be applied to such policy. For example, shares, stocks, real estate, currency, fixed income securities government bonds, alternative life insurance policies , and annuities can all form the investment component of such a policy. Investment-linked protection policies have been designed based on a variety of long term return goals, different risk tolerances, and specific investment predispositions.
Given that a number of insurers now provide investment-linked protection policy products, coverage can be obtained, and within set limits, regular contributions can be made to a variety of investment funds. Additionally, the policy holder can reallocate investments between funds as investment goals evolve.
As an illustration, an income fund may be managed by an insurance institution’s own team with considerable financial experience. Such a fund would be suitable for those requiring principal stability or limited risk with dividend payments beyond those that can be obtained with bank deposits. Such a fund would be primarily invested in fixed-incoming assets, and similar products, such as treasury bonds, and additional instruments, as permitted by the appropriate regulatory organizations, to obtain a reliable return on investment, through ongoing capital accumulation.
Were it not for the existence of coupled insurance investment products, it would be possible to disagree with the aphorism “buy term life insurance, take the money you have saved in comparison with a similar whole life policy, and invest that money” and purchase a normal life insurance policy, which yields both life protection and an element of long term investment. Such products would typically be more costly, however, they do allow for investment growth over the long haul.
