“Bob, I do have to admit I’m curious about this Variable Life Insurance policy. I’ve never heard of this before.”
“Well George, as I said, it’s been around for about 30 years but not many are accustomed to use Life Insurance as an investment. They still see it as a pure death benefit protection.”
“OK Bob. I first get the Death Benefit for my business and family and the Insurance withdraws money for the cost of insurance.” I nodded. “Now also I have the opportunity to invest in a whole platform of investment models. These cash account also grows tax-deferred.”
“That’s exactly the way it works George. In addition, keep in mind that there is some flexibility in using the cash accumulation to reduce or even skip premiums. At some point down the road you can even have the policy paid up and never need to invest another dime in the policy.”
“But Bob, aren’t there any risks or disadvantages?” George inquired.
“Of course George there are several must things to consider. Remember the sub-prime lending crisis of 2008-2009 that led to the stock market collapse?” George nodded with a concerned look on his face. “You must remember that the investment you choose could also face similar downturns. In theory, your cash value could be wiped out.” A frown grew on George’s forehead. I continued by adding that “We do not know if in fact that will happen but if it does there are two ways to protect yourself from this risk”
“First, you have the ability to transfer funds to a fixed, guaranteed account or money market portfolio. This will protect yourself from any future loses. There is no cost to do this and there will be no taxes as your account is tax-deferred.” George nodded but then inquired. “But I’ve invested more in this policy than I would have if I invested in another policy, right?”
“Yes George. This is true but you must keep in mind that this type of Life Insurance is not intended for everyone. This means you should have the financial ability to continue to make the premiums. Furthermore, you have to have the belief in the future growth of the stock market. In every economic downturn, there have always been a few areas of the economy that have had positive economic growth. It is my role in working with you to recommend any transfer to these positive areas.” Also keep in mind that by adding monies (paying the premiums) you are using a well-known technique called Dollar Cost averaging. So when the market is down you are actually purchasing more shares (Variable Life calls them units). Keep a long term perspective and like every downturn, the market has always rebounded.”
“Finally, George, keep in mind that if this severe downturn occurs, if you still pay the premiums, you will still have the Death Benefit. This is important to remember for this is the reason for making this investment.”
George looked away for a brief moment, turned and then asked a very key and pivotal question. “I’ll be honest Bob. I do like the idea of having added growth by participating in these variable investments. However, the thought of losing my money and going through severe downturns scared the daylights out of me.”
I smiled and replied. “You know George I feel exactly the same way. So what IF I told you that you could have investments in the stock market, have the death benefit and never lose a dime if there is a severe or any decline in the market. Would that ease your concerns?”
George said, “If you can do that I’d be very interested in considering that.” I said, “let’s set up another meeting and I’ll show you exactly how this new and unique plan works.”