An investment-focused life insurance is a permanent life insurance policy which contains an investment account inside the policy that can provide competitive net (after-tax and after-cost) investment growth. This investment account provides tax-deferred growth and typically has dozens of mutual funds, ETFs, and structured index strategies to construct a diversified portfolio, based on the policy owner's investment profile and risk tolerance. Dollar-cost averaging and portfolio rebalancing may be applied to invest in domestic and international stock, bond, balanced, real estate, and health care funds, etc. Using proper withdrawals and loans from the investment account, the policy owner may get tax-free income and pay 0% net loan interest. In addition, loans are not required to be paid back and beneficiaries receive the death benefit tax-free.

Variable Universal Life (VUL) and Private Placement Life Insurance (PPLI) are two types of permanent life insurance that provide the most tax-advantaged investment growth opportunity, established under the IRS tax code 7702. Many people may benefit from it for tax-free retirement income, after maxing out qualified retirement accounts such as 401k and IRA.

Although all permanent life insurance policies have similar tax characteristics, their insurance costs and net investment returns can vary dramatically. Over the long term, whole life insurance policies have low, but guaranteed, investment returns, IUL (index universal life insurance) policies may have medium, yet stable, investment returns, and VUL (variable universal life insurance) and PPLI (Private Placement Life Insurance) policies offer the most investment growth potential. VULs and PPLIs can have stock-like high investment returns with tax-free growth if you invest mostly in stock mutual funds or ETFs, although this comes with short-term market volatility. However, if you invest your cash value conservatively (mostly in bond mutual funds, bond ETFs, or structured index strategies), your VUL will perform like an IUL. Note that all life insurance policies have insurance cost, and their investment performance should be measured on the after-cost and after-tax basis. This is also true when comparing them against investments in taxable accounts, where tax cost may exert a significant drag on performance, depending on your tax bracket. It is fair to compare their after-cost and after-tax returns, which may differ by hundreds of thousands of dollars in the long term. Thus, choosing the right account types may directly impact your net worth by a big margin over the long term.

To see which strategy would benefit you the most, we provide free data analysis to help you make a decision. In addition, we may suggest a diversified portfolio with appropriate asset allocation based on your risk tolerance and investment profile. We may also help you with dollar-cost averaging and portfolio rebalancing.

The following articles may help you understand the roles of cash value life insurance policies in family protection, supplemental retirement income planning, tax planning, and estate planning.

1. Yes, Your 401(k) Has Its Perks, But It’s Not the Only Way to Save
2. Is life insurance a good investment?
3. Variable universal life insurance
4. What Is Section 7702?
5. Don’t Let Taxes Dim Your Retirement: How to Plan Ahead with Your ‘Tax Bucket List’

VUL (variable universal life) and PPLI (Private Placement Life Insurance) offer family protection and tax-advantaged asset accumulation with the most growth potential over the long term, compared to other cash value life insurance policies. However, it requires you to have relatively good health and be age-appropriate. Not everyone is qualified. If you are interested in knowing more about how such products may benefit you, we will be happy to provide free data analysis based on your situation to help you decide.