Now Is The Time To Seriously Consider Cash Value Life Insurance
It seems to be one of the rules of economics that consumers tend to purchase investments at the top of the market and sell them at the bottom.
This seems to apply not only to stocks, but to traditional cash value life insurance products, as well. Although there is not much activity in the sale by consumers of their life insurance policies, the purchases of cash value life insurancewhether the traditional fixed product or newer variable productsare currently in a lull.
Variable annuity and equity index annuities are enjoying good sales, but it seems that a significant amount of the sales volume is really exchanges of one annuity for another. The net inflow of assets into annuities and cash value life insurance seems to be low.
Certainly, the recent spate of low interest rates generally prevailing in the United States economy makes fixed products less appealing. Yet, traditional fixed cash value life insurance has, in the past, tended to keep pace with changing interest rate environments so that interest credited to the cash values in policy owners contracts has usually remained competitive with other forms of fixed rate investment.
It may be that the current low guaranteed floors built into most cash value have caused people who might otherwise buy such a product to wait until interest rates increase.
Yet, if history repeats itself, it is likely that most insurers will credit competitive rates of interestregardless of the floor guaranteed rates. That means this is a good time to think about purchase of traditional cash value life insurance.
The guaranteed floors are designed to protect insurers against record low rates of return on their investment portfolios. Virtually all cash value life insurance policies permit insurers to increase interest rates credited to cash values when economic conditions permit. Therefore, neither sellers of life insurance products nor consumers should view such guaranteed interest floors as the rates that will, in fact, be credited.
This would also seem to be an appropriate time for consumers to consider the purchase of variable life insurance. The stock market seems to have nowhere to go, at least in the long term, but up. Certainly, it is better to purchase a variable life insurance policy in todays market environment than it will be after the economy or the stock market has already gone up.
It is possible that the life insurance industry is not doing a very good job of telling its story to consumers. The recent scandals in the stock market in general, and in the mutual fund industry specifically, have caused a fair amount of erosion in consumer confidence in traditional forms of investment and saving. Yet, cash value life insurance still provides advantages that cannot be obtained by any other financial productparticularly for the average consumer.
The volatility of the stock market and the over-abundance of information about interest rates and economic trends have made many consumers wary of long-term commitments for their assets.
The agents and others who sell annuities often stress that they provide almost instant liquidity in case policy owners need funds. Yet, the tax rules applicable to annuities may make this liquidity too high-priced to be practical.
