comments powered by
Posted December 6th, 2012
There is a lot of discussion by financial advisors on the value of a participating life insurance policy compared to a non-participating policy. Generally a participating life insurance policy involves the insurance company paying the policyholder a share of the dividends created by the insurance contract. The method and timing of the payments vary based on policy type and contract stipulations.
Some advisors counsel against participating policies. Their mantra of “buying term and investing the rest” had a lot of followers during the stock market expansion. As the investment market grew during the 80’s and 90’s, the slimmer returns of a participating or a “whole life” insurance policy fell out of favor. But with the slide of market returns the usually more conservative return of a participating policy has seen an upsurge in sales.
When the effect of taxes on investment income is taken into account, many counselors feel that the gap between a users directed investment and the result of a participating life insurance policy are minimal. If you then consider the additional real benefit of having the accompanying life insurance policy in force during the policy period, they feel the benefits outstrip the higher risked user investment. If the advantage of long term insurability is considered (Term life policies are subject to renewal underwriting) the advantage is even greater.
While financial planners disagree on which type of life insurance should be used for your long term economic plan, all agree that some form of life insurance should remain one of the pillars in a successful economic plan. Your local independent life insurance agent can put together proposals utilizing both different forms of insurance and point out the benefits and problems associated with that investment vehicle.
Because he is an independent agent he can compare the market and work out a solution for you, whether you wish to participate in the life insurance policy or not.