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Universal life insurance and market volatility

Life insurance is an uncomfortable topic on a good day. Bring a worldwide pandemic into the mix and talking about benefits paid in the event of your untimely death becomes even more awkward.

We don’t bring it up now because of the virus’s risk to your health. Financial advisors should never lead decisions by fear—our job is to give you a sense of security, not the opposite.

We mention it because of how social distancing and the quarantine is affecting the economy and the stock market, and how this may disturb your plans for future income for yourself and your family.

If you have been focused on self-insuring and self-funding your retirement, long-term care and family’s lifestyle after you’re gone, an economic downturn may bring anxiety. If you have time to wait until the stock markets rise again before selling, you may not see any loss. However, if something changes before your portfolios have time to recover, you may not get the life in retirement and beyond that you dreamed about and planned for.

This is where equity-indexed universal life insurance (IUL) can help.

IUL is something of a hybrid product. It is a life insurance product, that can guarantee a payout upon death, and like other types of universal life insurance, it holds cash value that can grow up over time as you pay your premiums.

IUL’s prominence in the market can be traced back to the 2008 financial crisis. To be sure, the real life insurance ‘star’ from that era was whole life insurance, which spiked in sales. Whole life enthusiasts tout its non-correlation. It increases in value every year no matter what. Contractually it can’t lose value based on market or interest rate movement or anything else. Seems many people need that kind of assurance particularly in the wake of big scare.

Throughout the 2009 recovery, IUL gained significant market share year after year because of its upside potential (greater than whole life) and downside protection. Both features in one product make a formidable addition to one’s overall portfolio.

Not only can IUL mollify the sequence of return risk so detrimental to those close to or early in retirement, it provides opportunity and liquidity1 to those maybe a little too stock-heavy. No one wants to sell down and lock in a loss, and no one wants to regret lost opportunities such as real estate and other hard or soft assets selling at a big discount.

Finding Comfort in Protection Products

During periods of great uncertainty and fear, many find comfort in their foundational vehicles—insurance, emergency funds, etc. Of course, it’s fun riding the highs of a record bull run. But when slammed back to reality, knowing you have the big risks managed is immeasurably assuring.

Equity-indexed universal life insurance can grow nicely. Whole life insurance may grow better than you think, and it has the potential to increase in value in a downturn. It’s nice to have a portion of your assets in such vehicles while everything else is on the roller coaster.

Get Coverage While Maintaining Social Distance

You can acquire additional life insurance coverage during these trying times without leaving the house and in many cases, without hosting an examiner. You may not even need a phone interview!

Working with a financial professional and life insurance specialist, you can find a suitable life insurance product to help fortify your financial future through the unknowns of COVID-19.

North Star is an independently owned financial services firm, so our professionals are not tied to any particular life insurance product or provider, and they can recommend a solution appropriate to your specific situation.

Chris Sitek, CLTC®, CASL®, CLU®, ChFC®, RHU®, REBC®

Author: Chris Sitek, CLTC®, CASL®, CLU®, ChFC®, RHU®, REBC®

Vice President Life and Long-Term Care

Chris helps financial advisors at North Star identify the strongest insurance product solutions for their clients. In an industry with hundreds of companies and thousands of products, Chris helps narrows down the choices to the few that truly make sense based on each client’s unique situation.

Please Note: Specialists and advisors at North Star offer online and phone meetings, especially during these times.

1Policy loans and withdrawals may create an adverse tax result in the event of lapse or policy surrender and will reduce both the surrender value and death benefit. Withdrawals may be subject to taxation within a set period of time during the life of the contract as set by the insurance carrier. You should consult your tax advisor when considering taking a policy loan or withdrawal.

Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods. Policyholders could lose money in Indexed Universal Life products.

Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.

Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.