These kinds of savings plans are not as popular as they once were, as more people have learned the virtues of buying permanent life insurance and investing in index funds, instead of life insurance policies with investment provisions.
These include permanent life insurance, variable life insurance, and a host of alternative retirement-type policies, such as annuities.
Permanent Life Insurance
PROS:
- Build Cash Value – The plan builds up cash value when you make your insurance premiums.
- Tax-Deferred Earnings – Much like retirement plans, investment earnings on your policy’s cash value are tax-deferred until the money is withdrawn. This makes permanent life insurance something like an IRA with a life insurance benefit attached.
- Easily Borrow Funds – You can also borrow against the cash value of plan, much as you can with a 401(k) plan.
CONS:
- No Investment Control – Investment activity in an investment-type life insurance policy is handled entirely by the company, which means you will have no control over the process.
- Low Cash Accumulation – The cash accumulation in the plan is very low early in the process. This is because life insurance policies have high fees when it comes to investment type plans.
- Sub-par Returns – The returns on permanent life insurance policies are generally sub-par. You can likely get better returns using other retirement account vehicles.