Pro's & Con's of Permanent Life Insurance

As with any financial vehicle there are pro's and con's.

Advantages:

- Tax free/Deferred growth of your money that is comparable to equivalent taxable returns of up to 8-20%+ avg before tax

- Liquidity: Ability to access to your funds tax free via withdrawal or loan without restrictions or special requirements unlike 401k’s, IRA’s, and other qualified plans

- Funds obtained from the policy via withdrawal or by policy loan can be used for whatever purpose you desire unlike qualified plans (401, defined benefits, IRA, Keogh, 529, etc)

- Flexible repayment terms on policy loans taken from the policy, payments can be made when you want or none at all, interest due on loans can be deferred when your cash flow is tight which makes it adaptable to dynamic lifestyles and economic environments

- Asset protection from creditors in an event someone has a claim against you (varies on state)

- Borrowed funds do not reduce cash value which is contrary to common belief, the life insurance company lends you its own money and sets up a loan against your cash value so cash value and loan components are separate accounts within your policy. This allows your cash value to grow unhindered and in essence provides a huge opportunity for leverage if used strategically.

- Excluded from counting as an asset when applying for student loan or financial aid

- High Contributions are allowed unlike 401k or IRA’s which have strict contribution, income limits, and rules on when you can contribute and how much

Disadvantages:

- May not make sense for those who are looking for a short term store of their savings because the expenses can be cost prohibitive for a person with a short term horizon

- When improperly funded the policy may not perform to the liking of the owner

- The more guarantees you want from the insurance company, the lower return you'll have to settle with (generally)

- The policy is only as credible as the company backing the policy so good financial ratings is key

- Life insurance is not an investment so its important not to think of it as so but merely a financial instrument that you run your savings through to maximize protection or wealth depending on how its utilized