There is a pervasive myth that insurance products produce mediocre returns. In truth, though life insurance has been purchased for many years to provide security and guarantees, there are some newer product lines that can be very attractive for investment purposes—particularly in volatile markets.
In order to remain competitive and relevant, the insurance industry has had to become much more creative with the investment options underlying their products. Years ago, they unveiled variable life insurance and variable annuities, where policyholders can invest monies that were over and above the cost of the insurance itself into mutual funds. Policyholders can choose from a myriad of mutual funds to invest in, much like what they’d find in various 401(k) plans, and now, some even offer target date funds as well. When the market goes up, the investment account or cash value accounts go up with it, and when the market declines, so do the underlying values to match a broader spectrum of risk tolerances.
With the market so volatile, fixed returns at all-time lows, and not much movement in sight, insurance companies were forced to find ways to pivot. Indexed products, such as indexed annuities and indexed universal life insurance came about. These products carry unique features to secure your principal with downside protection while offering some level of returns if the market does well. The defining phrase that emerged from this pivot was “Zero is my hero.”
When we experience a market crash, like we did in 2008 or again this past February, the unleveraged indexed products don’t lose value. When the market goes down, you retain your value, but when the market rises again, you share in a piece of the upside to a cap. The annuity products also have riders that provide a guaranteed payout in retirement that you cannot outlive. Features like these make such products attractive to protect against market decline while locking in a minimum payout for life.
So, it may be time to reassess your old views on life insurance and annuities. For those looking for stable investment options that protect against drops in the market, but also allow for some growth potential, indexed annuities or indexed universal life insurance policies are worth considering. And if you like slow and steady returns, good old-fashioned Whole Life is still worth a look.
If you’re interested in learning more about these products and how they might fit your portfolio, we are here to help.
Evan Macedo, Vice President Finance & Operations at Sapers & Wallack, answers questions about our June blog, 
Jeff Tomaneng, Director of Financial Planning at Sapers & Wallack, answers questions about our April blog, 
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