Indexed and Variable Universal Life Insurance Could Be a Play for Tax Conscience Investors

For moderate to aggressive savers who are tax conscience about their investments and appreciate long-term horizons, cash-value life insurance offers domestic and foreign indices as well as equity and bond subaccounts. Wealthy and affluent investors appreciate the tax-free income that can help manage taxes in retirement and in an allocated investment portfolio.

Cash-value life insurance, issued as a non-modified endowment contract, can generate tax-free distributions as long as the contract is kept in force for the life of the policy insured. So that’s the caveat for the taxation issue. Having a menu of investment possibilities suitable for the policy owner can help build a portfolio according to their risk tolerance and financial goals. Watch the interview with popular platform speaker; asset management and life insurance specialist Rob Hagg as he speaks about indexing and subaccount investing with tax-advantaged life insurance.

Indexed Universal Life provides limited access to domestic and foreign, i.e., no dividends and may have rates of return caps or participation rates. But the trade off is the crediting account will never credit a negative return, so zero is your worst scenario, with downside market protection. On the other side of the balance sheet, you have policy expenses like most financial products. So you could have a zero crediting year minus your policy expenses and experience an actual loss. That’s full disclosure.

Variable Universal Life provides access to equity and bond subaccounts that charge a management fee and traditional life insurance policy expense loads. The extra fees have to be assessed against the tax savings to determine if the arbitrage between them has economic value. For high-tax-bracket investors, the tax savings overcome the extra expense. But keep in mind outside these subaccounts you’re subject to market volatility, so you can lose money.

Both of these product lines are long-term horizon investments. In fact, to remain tax-free, the contract must be kept in force for the life of the policy insured, i.e., a lifetime horizon.

Non-Modified Endowment Life Insurance Contracts are comprised of two types of tax-free distributions: one is tax-free basis; the other is a tax-free collateralized policy loan. To ensure tax-free distributions, Non-Modified Endowment Life Insurance Contracts must be kept in force for the life of the policy insured.

Nationally syndicated financial columnist Steve Savant interviews with popular platform speaker, asset management expert and life insurance specialist Rob Hagg. Right on the Money is a weekly one-hour online broadcast for TV and radio distribution. The show contains five ten-minute segments that are redistributed online as individual video press releases.