Insurance & Wealth Planning
LIFE INSURANCE, REIMAGINED
More than a death benefit. A strategy for the life you're building.
Life insurance is usually introduced as protection for the people you leave behind. That remains its first and most important purpose. But depending on the policy type and design, life insurance may also provide financial options you can use during your lifetime.
Those options can include conversion rights, accessible cash value, policy loans or withdrawals, supplemental retirement income, living-benefit riders, and efficient wealth transfer.
The conversation should not begin with a product. It should begin with purpose: What financial risk are we protecting against? What flexibility might be useful during life? And how should the policy fit within the rest of the financial plan?
Five Ways Life Insurance May Provide Value During Life
- •A term policy may have options before it expires
- •Permanent insurance may build accessible cash value
- •Properly designed coverage may supplement retirement income
- •An IUL may provide index-linked interest with a crediting floor
- •Certain riders may provide benefits during qualifying illness or care needs
Term and Permanent Insurance Solve Different Problems
Term insurance provides a death benefit for a stated period and usually offers the greatest initial coverage per premium dollar. It is often the logical starting point for working families with a large but temporary need.
Permanent insurance is designed to last for life and includes cash value. Whole life, guaranteed universal life, indexed universal life, and variable universal life differ materially in their guarantees, flexibility, costs, and risk.
Before allowing a term policy to expire, review its conversion provisions and other available options. Some term policies may be converted to permanent coverage, often without new medical underwriting. Depending on the insured's age and health, the policy size, and applicable state rules, an existing policy may also qualify for a life settlement. Before walking away from coverage, understand what you own and what alternatives may be available.
Cash Value Can Create Financial Flexibility
Some permanent policies build cash value that may be accessed through withdrawals or policy loans. Depending on the policy and its performance, that value may provide flexibility for emergencies, education, business needs, retirement, or other financial priorities without requiring the owner to sell investments.
Withdrawals and loans can reduce the policy's cash value and death benefit. Loans also accrue interest, and a policy lapse or surrender with an outstanding loan may create taxable income. Policy design, funding, and ongoing monitoring matter.
Liquidity without forcing the sale of other assets.
Life Insurance May Help Supplement Retirement Income
A properly designed, adequately funded policy that is not classified as a modified endowment contract may provide tax-advantaged access to cash value through withdrawals and policy loans. This can supplement, but should not automatically replace, Roth accounts, qualified retirement plans, and traditional investment portfolios.
A loan is still a loan. Interest accrues, the death benefit may be reduced, and a policy that lapses or is surrendered with an outstanding loan can produce taxable income, potentially without cash available to pay the tax. Funding a policy beyond federal limits can also turn it into a modified endowment contract, changing the taxation of distributions.
The relevant question is not whether a sales illustration shows attractive income. It is whether the policy survives under conservative assumptions after charges, loans, changing crediting rates, and years of actual behavior.
What an IUL Crediting Floor Actually Means
Indexed universal life insurance, or IUL, does not directly own or invest in a market index. Interest is credited according to a formula linked partly to an index's performance.
A 0% crediting floor generally means that a market decline will not produce a negative index credit for that crediting period. It does not guarantee that the policy's total value cannot decline. Caps, participation rates, spreads, policy charges, insurance costs, and loan costs still affect policy performance and value.
When the Index Rises
The policy may receive a positive interest credit, subject to the policy's cap, participation rate, spread, and terms.
When the Index Falls
The index credit may be 0%, rather than negative. Policy charges still apply.
Some Policies May Provide Benefits While You Are Living
Optional long-term-care, chronic-illness, critical-illness, or accelerated-death-benefit riders may help cover qualifying care or illness, including cognitive impairment such as Alzheimer's, while the policyholder is living.
Eligibility requirements, benefit triggers, costs, limitations, and availability vary by policy and state. These riders are not substitutes for ordinary health insurance, and accessing benefits may reduce the remaining death benefit.
Financial protection for them.
Financial flexibility for you.
Five Questions to Ask Before Choosing a Policy
A policy should be reviewed as carefully as any other long-term financial commitment.
- What premium and death benefit are contractually guaranteed?
- Which assumptions can change after issue?
- What happens if dividends or crediting rates are lower than illustrated?
- How do loans accrue interest, and what would cause the policy to lapse?
- What are the surrender charges, tax basis, and exit options if the plan changes?
At Acanto LLC, insurance is not evaluated in isolation. We begin with the financial need, compare appropriate policy structures, and consider how insurance may work alongside investments, retirement income, business planning, taxes, and the estate plan.
The objective is not simply to buy a policy. It is to determine whether insurance can perform a useful and clearly defined job within the broader financial strategy.
Three Strategies You May Have Heard About
Some of the most interesting uses of permanent life insurance are frequently described through memorable phrases. These are planning concepts, not specific insurance products, and the details matter.
The Power of Zero
Popularized by David McKnight, the Power of Zero is a retirement-tax philosophy focused on building multiple sources of tax-free or tax-efficient retirement income. The broader strategy may include Roth accounts, Roth conversions, carefully managed taxable investments, Social Security planning and properly structured life insurance. The goal is to reduce exposure to potentially higher future tax rates, not to promise that someone will literally pay no taxes.
The "Rich Man's Roth" or LIRP
The "Rich Man's Roth" is informal shorthand for using permanent life insurance as a source of supplemental, tax-advantaged retirement liquidity, particularly when someone has already maximized conventional retirement-plan opportunities. It is also commonly described as a Life Insurance Retirement Plan, or LIRP. It is not a Roth IRA, and access is not automatically tax-free. Policy design, funding, non-MEC status, loan costs and keeping the policy in force all matter.
Infinite Banking
The original Infinite Banking Concept®, developed by Nelson Nash, uses a specially designed dividend-paying whole life policy as part of a disciplined financing process. The owner may obtain loans from the insurance company using policy value as collateral. The owner is not literally borrowing from himself, loan interest is charged, dividends are not guaranteed and outstanding loans reduce available value and the death benefit.
These concepts can be valuable when properly designed, but the label is never a substitute for understanding the contract, the costs, the risks and the alternatives.
Life Insurance, Reframed as Strategy
In its many forms, life insurance can provide a foundation for sound financial planning and sophisticated wealth creation and transfer.
It can protect income, build accessible value, diversify retirement income, provide living benefits, and create liquidity for family, business, or estate needs.
Most people are taught to buy a policy. Few are shown how to design insurance as part of an integrated financial strategy.
This material is for educational purposes only and is not individualized investment, tax, legal, or insurance advice. Tax laws, retirement-plan rules, insurance contracts, and individual circumstances can change. Consult qualified professionals before implementing a strategy. Guarantees are subject to the claims-paying ability of the issuing insurance company.
Policy features, benefits, costs, tax treatment, loan provisions, rider availability, and eligibility vary. Policy loans accrue interest and may reduce cash value and death benefits or cause a policy to lapse. Guarantees are subject to the claims-paying ability of the issuing insurer. Consult qualified insurance, tax, and legal professionals before implementing a strategy.
Peter Lusk, Jr., MBA, CMT
Founder & Chief Investment Officer, Acanto LLC
Support@acantollc.com | (914) 714-0735