How to View Life Insurance As An Investment Tool

A lot of people have been approached about using life insurance as an investment tool. Do you believe that life insurance is an asset or a liability? I will discuss life insurance which I think is one of the best ways to protect your family. Do you buy term insurance or permanent insurance is the main question that people should consider?

Many people choose term insurance because it is the cheapest and provides the most coverage for a stated period of time such as 5, 10, 15, 20 or 30 years. People are living longer so term insurance may not always be the best investment for everyone. If a person selects the 30 year term option they have the longest period of coverage but that would not be the best for a person in their 20’s because if a 25 year old selects the 30 year term policy then at age 55 the term would end. When the person who is 55 years old and is still in great health but still needs life insurance the cost of insurance for a 55 year old can get extremely expensive. Do you buy term and invest the difference? If you are a disciplined investor this could work for you but is it the best way to pass assets to your heirs tax free? If a person dies during the 30 year term period then the beneficiaries would get the face amount tax free. If your investments other than life insurance are passed to beneficiaries, in most cases, the investments will not pass tax free to the beneficiaries. Term insurance is considered temporary insurance and can be beneficial when a person is starting out life. Many term policies have a conversion to a permanent policy if the insured feels the need in the near future,

The next type of policy is whole life insurance. As the policy states it is good for your whole life usually until age 100. This type of policy is being phased out of many life insurance companies. The whole life insurance policy is called permanent life insurance because as long as the premiums are paid the insured will have life insurance until age 100. These policies are the highest priced life insurance policies but they have a guaranteed cash values. When the whole life policy accumulates over time it builds cash value that can be borrowed by the owner. The whole life policy can have substantial cash value after a period of 15 to 20 years and many investors have taken notice of this. After a period of time, (20 years usually), the life whole insurance policy can become paid up which means you now have insurance and don’t have to pay anymore and the cash value continues to build. This is a unique part of the whole life policy that other types of insurance cannot be designed to perform. Life insurance should not be sold because of the cash value accumulation but in periods of extreme monetary needs you don’t need to borrow from a third party because you can borrow from your life insurance policy in case of an emergency.

In the late 80’s and 90’s insurance companies sold products called universal life insurance policies which were supposed to provide life insurance for your whole life. The reality is that these types of insurance policies were poorly designed and many lapsed because as interest rates lowered the policies didn’t perform well and clients were forced to send additional premiums or the policy lapsed. The universal life policies were a hybrid of term insurance and whole life insurance policies. Some of those policies were tied to the stock market and were called variable universal life insurance policies. My thoughts are variable policies should only be purchased by investors who have a high risk tolerance. When the stock market goes down the policy owner can lose big and be forced to send in additional premiums to cover the losses or your policy would lapse or terminate.

The design of the universal life policy has had a major change for the better in the current years. Universal life policies are permanent policy which range in ages as high as age 120. Many life insurance providers now sell mainly term and universal life policies. Universal life policies now have a target premium which has a guarantee as long as the premiums are paid the policy will not lapse. The newest form of universal life insurance is the indexed universal life policy which has performance tied to the S&P Index, Russell Index and the Dow Jones. In a down market you usually have no gain but you have no losses to the policy either. If the market is up you can have a gain but it is limited. If the index market takes a 30% loss then you have what we call the floor which is 0 which means you have no loss but there is no gain. Some insurers will still give as much as 3% gain added to you policy even in a down market. If the market goes up 30% then you can share in the gain but you are capped so you may only get 6% of the gain and this will depend on the cap rate and the participation rate. The cap rate helps the insurer because they are taking a risk that if the market goes down the insured will not suffer and if the market goes up the insured can share in a percentage of the gains. Indexed universal life policies also have cash values which can be borrowed. The best way to look at the difference in cash values is to have your insurance agent show you illustrations so you can see what fits you investment profile. The index universal life policy has a design which is beneficial to the consumer and the insurer and can be a viable tool in your total investments.

Digital Finance

Digital finance is a robust medium to broaden the access outside the financial services to other sectors, which includes agronomy, infrastructure, services, energy among others. People without a bank account are accessing the financial services via the digital medium. Several stakeholders are utilizing the cell phones along with a gamut of agents to provide simple financial services at better suitability and reduced cost against conventional banking. It is also known as “Branchless Banking”.

Traditionally, the huge expenditure involved in constructing and managing conventional banks has been a key stumbling block for connecting with the low income groups. A banking infrastructure is not easy to manage in remote areas, while it would be expensive for customers in the rural areas to commute to the urban centres.

Digital finance assists in negating the obstacles. Agents having cell phones are the most optimal medium for handling less value transactions for low income groups, cost effectively. Cash flow into innovative digital finance firms keeps increasing for consolidating assigned digital banking, mobile solutions and delivery platforms among others.

The impact of digital finance on the global economy is expanding at an accelerated pace. It is transforming the way financial transactions are done. The benefits of the digital finance are many, including cost decrease, development of essentially digital financial products and services, including advanced ones. Certain digital finance products are delivered on modified global digital platforms.

The technological advancements provide new prospects for FinTech start-ups. It also assists various stakeholders including governments and firms to steer development. There is a need for a highly effective global regulatory infrastructure to manage digital finance.

The Establishment of a Facilitating Scenario for Digital Finance Needs Certain Critical Policy and Regulatory Queries to Be Resolved Such as:

  • Corresponding the keenness for innovation with assurance about the legal framework.
  • Regulating and protecting the provision of modified digital finance tools such as e-money.
  • Comprehending AML’s concerns pertaining to digital finance and mobile-empowered international remittances.
  • Monitoring digital financial services.
  • Regulating a wide array of third-party agents.

The provision of financial services via highly innovative technology, which includes mobile money, could be a driving force for the utilization of a gamut of financial services – credit, insurance, savings among others.

According to Jin-Yong Cai, International Finance Corporation Executive Vice President and CEO, “The benefits of digital finance extend well beyond conventional financial services: This can also be a powerful tool and an engine for job creation in developing countries.”

As per Thomas Duveau, the Head of Mobisol Solar Home Systems, “The buzzword ‘digital finance’ is already an everyday reality for our Tanzanian, Kenyan, and Rwandan customers who are using Mobisol Solar Home Systems. Paying for solar power in small instalments through mobile money is not a ‘fancy option’: It’s already the norm for commercial transactions by those at the bottom of the economic pyramid.”

Digital finance is also critical for the retail business. It ensures the small businessmen have the access to funding, along with the electronic payment systems, robust financial products and the opportunity to construct a financial track record.

According to Walt Macnee, President of the MasterCard Center for Inclusive Growth, “Innovations in electronic payment technology like mobile and prepaid enable people to live more secure, empowered and included lives and that digital money will be the only way to achieve universal access to finance by year 2020.”

Digital Finance is a priority for banks in the recent past. The innovations like mobile deposits have radically changed the reach of banking. Currently, customers are finishing most of the transactions online using a mobile or tablet device. Customers are very conscious about the latest technology.

The penetration of the digital finance is expected across various segments, including the medium scale business and corporate banking. There are obstacles like security, greater intricacy with regard to the kind of services required for distinct businesses.

Some of The Challenges That Could Be a Stumbling Block for Digital Finance:

Availability of Liquidity with Agents

Agents operating in rural environments usually have problems in honouring their commitments, resulting in displeased customers and falling confidence in the service.

Interoperability

Transferring money through the mobile is usually not interoperable amongst providers. This prevents the flow of money which could have been used to cater to more customers.

Malpractices

The increase in agents has led to various malpractices along with service delays in certain markets.

The Key Developments in the Digital Finance:

  • The availability of instruments to expedite the account creation process.
  • The utilization of biometrics (finger and voice) to facilitate customer verification.
  • The use of field oriented management instruments to monitor field personnel.
  • The appearance of third-party agent aggregators.
  • The development of applications that assist financial firms with mobile money amalgamation.
  • The creation of top notch technology that ensures digital payments in retail stores.
  • The use of other data options for arriving at credit conclusions.
  • The leverage of business intelligence.
  • The availability of micro credit through the mobile.
  • The expansion of financial products provided by non-mobile cash benefactors.
  • The advancements in financial competencies.
  • The overall buying and selling in agribusiness using the mobile apps.

Digital financial services are evolving across global markets. Certain nations with the available infrastructure are providing a wide array of products and services. The differences between nations are directed by many aspects, which includes the use of cell phones, the growth of financial infrastructure, the regulatory framework among others.

The part of innovation is critical, since it would ignite enhancement in the fast transforming mobile money environment. Any increase in process efficiency would reduce the cost and decrease obstacles.

The digital finance environment is changing continuously and would be radically different in the long term. In an increasingly integrated international economy, innovations from various markets could be implemented and customized to suit local requirements. It would help consumers from various income strata. The digital finance journey has been excellent, but it is just the beginning.

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