Insurance or Investment?

January-February 2009

IN A RECENT MEETING, I was talking to a business owner about his insurance needs. While we reviewed his requirements he mentioned that while it would be nice to have all of his insurance needs covered, he would still like to have money for investing. While looking at the different types of insurance options available, term versus whole insurance, we tried to strike a balance.

As this would be another expense, we decided to look at this from a business perspective. Would he be interested in a policy that would be like putting me on the payroll with the following conditions:

• I would work for $10 per hour.
• After 10 years, he can fire me and I’ll give him back everything he’s paid me.
• After 20 years, he can stop paying me and I’ll still work for him.
• When he retires, I’ll pay him an income.
• When he dies, I’ll make a lump-sum payment to his loved ones.

So what kind of policy would provide coverage and give benefits like an investment? A “20-Pay Life” insurance policy. A salary of $10 per hour, 40 hours per week, 50 weeks per year, is equal to an annual premium of $20,000. A 20-Pay Life gives you the highest early cash surrender values of all participating life insurance policies. After 10 years – depending on dividend performance, age, gender, health and smoking status – your cash surrender value should equal everything you paid in premiums.

After 20 years, your basic lifetime coverage is fully paid up. No further premiums are due.

So how is this an investment? In addition to the guaranteed death benefit, your policy also accumulates a tax-advantaged cash value, with both guaranteed and non-guaranteed values. You can access your policy’s cash value to help supplement your retirement income. If the accumulation stays within prescribed limits, the cash value is only subject to income tax when it’s withdrawn. When you die, the policy delivers the death benefit, tax free, just at the time your family and/or business needs it most.

Whether you are purchasing insurance or making an investment, it’s essential to receive professional financial security advice from a knowledgeable advisor. Whether you have a desire to actively manage the investment component and have a need for premium flexibility, or would prefer a passive management approach to your insurance using a participating account managed by the insurance company at a fixed cost, contact your financial security advisor. Your financial security advisor should spend the time to understand your financial goals and insurance needs, risk tolerance and the control you want in managing your policy. Ensure your life insurance is a good fit for you now and in the future. Your dreams and goals are the foundation of a financial security plan tailored just for you.

— Kell Sewell, 705-761-1395,

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