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Life Insurance – Tax Free Investment

Many clients hear of cash value life insurance and have that nagging thought of "I thought life insurance was a poor investment." Actually, we agree with you! This is because the vast majority of life insurance professionals and money managers are unaware of how to structure a policy correctly to maximize the tax benefits and minimize the insurance costs. In addition, while many carriers offer the products described here, only a handful have proven to be efficiently priced over time. Life insurance as a tax free investment must be structured correctly, funded properly and placed with the right carreirs.

Tax Efficient Investing – For over a century, life insurance in the U.S. has retained very favorable tax treatment on the cash value accumulation within a policy. If structured correctly, the cash value within a policy will accumulate without tax. It can also be withdrawn without tax using loans (which are ultimately repaid by the death benefit, which is also free of income tax). This makes life insurance a very attractive and safe investment vehicle. U.S. insurance companies have a wide array of options to choose how the underlying cash values will be invested. Two of the most popular are “Whole Life” policies (which yield a guaranteed fixed return) and “Indexed Universal Life” policies, which allow for participation when the market goes up and principal protection if the market goes down. Below are historical net compound averages on the underlying cash values for both types of policies:

Policy Type 30 Year Historical Net IRR (tax free)
Whole Life 6.36% annually
Indexed Universal Life 8.3% annually

At Copperstone Partners, we understand that to some clients the guarantees of whole life may outweigh the benefit of the potential earnings of Indexed Univeral Life. Our job is to fully educate the client and ensure that the product they choose meets the goals and risk tolerance of the individual.

For qualified investors planning to invest more than $2M, Private Placement Life Insurance is a more flexible option. For more information please see Private Placement Life Insurance.