A growing number of people in the US are using the policies to help get through inflation.
The number of Americans turning to their life insurance policies to help get through inflation and economic uncertainty without having to tap into retirement accounts already suffering from 2022’s volatility.
There has been a substantial increase in Americans taking out loans or withdrawals from policies.
According to Massachusetts Mutual Life Insurance Co data, last quarter showed a 31 percent year-over-year increase in the number of Americans taking out loans from or withdrawing from their policies. The total loaned or withdrawn came to almost $700 million in that quarter. That substantial rise places the spotlight not only on the current environment of financial uncertainty, but also on the liquidity options available through permanent life insurance policies, which makes it possible to withdraw or borrow without having to cancel the policy altogether.
“In this inflationary time, people are tapping into their permanent life insurance policy’s cash value,” explained MassMutual head of product Paul LaPiana in a recent Yahoo Money report. “At the same time, we are not seeing any upticks in policy surrenders, signaling that people value the coverage that their life insurance policy provides.”
The cash value of permanent life insurance policies often appeals to people facing financial uncertainty.
Permanent policies are different from term policies in that they last the lifetime of the policyholder, earning tax deferred cash value on top of the death benefit. That cash value is usable while the policyholder remains living and can be accessed in the form of a withdrawal or a loan against the policy.
The primary difference in permanent policy products has to do with the way the cash value will experience growth. For instance, Universal and whole products are invested with the portfolio of the insurer. On the other hand, indexed universal and variable products’ cash value is invested into indexed funds and stocks.
“One of the greatest benefits of permanent life insurance is the ability to accumulate cash value that grows tax deferred,” explained Brokers International CEO Mark Williams in the same report. “and can be accessed in the form of loans, withdrawals, or surrender for the life of the policy.”