Whole Life vs Indexed Life Insurance During Inflationary Periods

Over the last two years, we have watched the price of goods and services skyrocket while the stock market has been more volatile than it’s been in many years.  From the Covid pandemic to supply chain and labor shortfalls, the country is mired in economic uncertainty.  The life insurance industry has seen increased interest as a steady ship in stormy seas these past years.  

Now that we are in a high inflationary period and stocks are down more than they are up, people are looking for safe places to put their money while also looking to secure the financial future of their families in the event of their death.  There has long been a debate between the merits of Whole Life vs Indexed Life insurance policies.  Let’s tackle the question of which type of insurance is best suited for these wild and unpredictable times. 

Advantages of Indexed Life Insurance 

Indexed Life insurance offers the policyholder an opportunity to tie the value of their policy to a market index such as the DOW or S&P 500.  Typically, there is a “Zero is my hero” element embedded in these policies.  This means that if a market index does not post any gains for the quarter, the policy will not lose value, but instead will net no gains.  It should be noted, however, that fees associated with managing the policy will still be paid resulting in a slight loss to the policyholder.  

Conversely, when the market roars back to life again, the policyholder will enjoy a capped percentage of that growth.  This is the main appeal of Indexed policies.  They grow in value when the market is thriving and stay relatively neutral when the market is down.  

During an inflationary period with market volatility, however, indexed policyholders may not see gains in their policy value.  With the nation heading towards a possible recession, this may mean that Indexed Life policies will not see gains for many years. 

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Advantages of Whole Life Insurance

Whole Life policies are fiscally conservative compared to Indexed policies.  They are not tied to a market index and therefore do not enjoy increased value over periods of market upswings.  However, their greatest strength may lie in their consistency.  A Whole Life policy promises a small, but steady return on the value of the policy.  The average return in the United States on a Whole Life policy is around 1.5%.  While this may seem low, it is still higher than many interest-bearing savings accounts or money market accounts that banks offer.  

During an inflationary period and a down market, Whole Life policies represent a stable and reliable alternative to Indexed policies.  Whole life policies offer a calm in the storm, providing both peace of mind for the family of the policyholder as well a consistent return on the policy value. 

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Premium Financing Can Ease the Inflationary Burden

Premium financed life insurance involves working with a 3rd party lender in order to obtain a loan that covers the cost of insurance premiums.  The policyholder may pay interest on the loan which allows them to retain more liquidity and financial flexibility.  Eventually, the loan can be paid off in full utilizing a portion of the death benefit when the policyholder passes away.  The remainder of the death benefit is distributed amongst the beneficiaries of the policy.  

Premium financing for life insurance can help ease the burden of high inflation because it leaves more cash in the accounts of the policyholder.  Premium financing is a way to obtain large life insurance policies without paying the premiums out of pocket.  The policy can be held by a trust or an individual and is an excellent tool for qualified applicants who wish to secure a significant policy without liquidating valuable assets.  

IPFM is Here to Help Clients Find the Best Fit for Their Needs

IPFM invites clients and their advisors to inquire about our offered premium financed loans, life insurance policies, the necessary requirements, and the process to get started. Our team is available to help facilitate the premium financed insurance process from start to finish.

For more information contact us at 877-281-1311 or visit our website at ipfmass.com.