The Downside of High Cash Value Life Insurance
No investment product is perfect.
Although the benefits of high cash value life insurance massively outweigh the downsides, there are downsides.
These downsides don’t make life insurance unusable, they do, however, force us to be more planned in our approach.
1: MEC – The MEC, or modified endowment contract, is a regulation that tells us how much money we can put into a life insurance policy. Because of this, we must buy death benefit. Although death benefit, especially in retirement, is a must have, buying it up-front can take our money longer to grow. This means that some of our money, although it will be recouped later, goes towards death benefit costs that we may or may not need immediately.
2: Five Year “Sweet Spot” – Because of the MEC and the death benefit, life insurance takes a few years to catch up to itself. This does not drastically impact long-term growth. However, because some of our money is going to base death benefit, it can take a few years for us to see the actual returns on our money. This forces life insurance to be a much more long-term strategy instead of something we can buy and sell as we please.
3: Dollar Limitations – Although we can put as much money into life insurance as we want, each life insurance policy will have a dollar amount specified when we start it. This means that, if we decide to invest $1,000 dollars a month into a life insurance policy, our maximum amount we can put into our policy is $1,000. To make matters even a little more complicated, our limit, in this case $1,000 dollars, is also our most efficient dollar amount. So, by maxing out our life insurance policy we will get the most benefit possible. Especially in the first five years.
There is No One Size Fits All
What R. Nelson Nash started was a unique new perspective on whole life insurance and how to maximize the safety, tax advantages, and liquidity that can be found inside of this investment vehicle.
Whether you call it Infinite Banking or by another name there are many different methods for doing the same thing.
What we do want to emphasize is that Infinite Banking and other life insurance investments that work do not involve or utilize universal life insurance in any way. Universal life insurance is much different than whole life insurance and there are some fundamental flaws that make universal life not only risky, but very expensive.
Infinite Banking and whole life insurance offer a very strong and practical option for investing. However, in the end it will greatly depend on your own personal situation, risk tolerance levels, and financial goals.
There is no one size fits all with investing.
Every investment has its downsides. Where one may see a safe investment that has competitive gain another may see a weak investment that doesn’t offer any risk.
Each individual is different. Find the right investment for you and stick to a long-term plan.
Download our free guide now right here and learn more about safe investment options and how they can impact your financial future. Get a better idea of where you are, where you want to be, and the best way to get there in this free guide.