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Overcoming the Challenges of Today’s Volatile Markets

Life Insurance

Inflation, rising interest rates, bank failures, volatile stock markets – the current financial environment is more challenging than many investors anticipated. The question that many of them are asking is whether there might be a way to protect their assets from the forces that threaten to erode them.

Perhaps surprisingly to some, one possible solution might be life insurance – specifically, whole life insurance.

Benefits beyond Protection

The death benefit offered by whole life insurance policies is guaranteed and tax-free to your beneficiaries. Equally important, however, is the fact that a portion of the premiums you pay for your policy that go toward the mortality/cost of insurance is locked in, guaranteed never to increase, which is not the case for other permanent insurance products.

Much of the remainder is allowed to accumulate as cash value and increase the death benefit over the life of the policy.

In addition, whole life contracts offer annual dividends that are based on the profitability of the issuing insurance company. A portion of that annual dividend is guaranteed each year. Dividends are influenced by prevailing interest rates, so while the rising rates of recent months have depressed returns and even generated losses for many investors in equities and bonds, they will also contribute to higher dividends in many whole life policies (insurance company dependent). Those higher portfolio returns are passed on as dividends to whole life policyholders.

What Else Should You Know about Whole Life Insurance?

Cash value in a whole life policy can never diminish because of prevailing market conditions.

Moreover, it is allowed to grow tax-free and can also be withdrawn, with no explanation required or mandates on how it is used. The loan is also not recognized by the IRS as income; therefore, it remains free from tax as long as the policy stays active. A policy loan reduces your available cash value and death benefit. If you pass while owing money on a life insurance loan, it will reduce the amount your beneficiaries receive, be sure to thoroughly examine the context of your situation before taking a policy loan out.

Cash value is used for cash flow needs: emergency fund in the event of loss of employment or unexpected expenses, a down payment on a home, college education costs, and/or retirement cash flow needs in a down market or high-income tax environment.

In short, a carefully selected whole life policy can not only provide you with insurance protection but guarantee income that, in today’s environment, may well exceed the income available from money market funds, banks CDs, US Treasury Securities, and even some corporate bond funds. The key term, of course, is “carefully selected.”

At Lenox Advisors, we maintain an open architecture platform that provides access to a wide variety of insurance carriers and products. Through careful research, your Lenox Advisors team can help you identify the type of policy that offers the right combination of benefits and cost for your specific needs.

Your Advisor team can also help you review your current insurance coverage and understand whether it is continuing to meet your needs in today’s challenging environment.

Equity Investing with a Safety Net

Annuities have long been favored by retirement-conscious investors as a way to generate income that is guaranteed to last as long as they live. Annuities can be fixed in that they offer a guaranteed rate of return, or they can be variable, providing you with a selection of professionally managed investment options that may generate potentially higher returns. In today’s challenging market environment, however, there is a new annuity option that has attracted considerable attention.

Registered Index Level Annuities (RILAs) track the price returns of several popular stock indexes with significantly less risk. In one version, losses you incur cannot go beyond a specified level due to specified floors. In other instances, the first 10-30% of losses are “buffered” and only index losses in excess of the stated buffer are realized by the client. In return, you sacrifice any gains achieved by your indexes should they exceed a specified cap, either annually or over a period of, say 6 or 7 years.

With RILAs, you also have the ability to switch the indexes being tracked as market conditions warrant with no tax consequences.

Talk to your Lenox Advisory team to determine whether this innovative vehicle might have a place in your portfolio.

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