Taking Cash Off the Table: Life Insurance, Annuity Alternatives

    Taking Cash Off the Table: Life Insurance, Annuity Alternatives

    By Allen Wastler

    When stock and bond markets get volatile, many investors look to move their money into less uncertain areas.

    Often that means shifting into cash. And that’s been happening in a big way. Since the middle of last year investors have put $208 billion into cash assets, according to a Bank of America Merrill Lynch survey. By contrast, investors only put $7 billion into stock funds and took out $46 billion from bond funds.

    Of course, cash doesn’t offer much of a return these days. Average interest rates for money market funds and savings accounts have been very low for the last few years and are currently less than 1 percent for most accounts. However, if consumer prices generally go down then the value of cash on hand goes up. As Bank of America noted in the aforementioned survey, investors seem to be “buying deflation.”

    And many commodity sectors have been in a downward spiral lately. Witness the plunge in oil prices over the last year. Somewhat ironically, commodities are another option that investors sometimes look at to get away from stock and bond market volatility. Similarly, real estate and collectibles are in the alternative mix as well.

    What are the other options for taking money off the market table, but still having it produce a return?

    Life insurance and annuities are possibilities and yes, this is coming from MassMutual, a company that issues these products. Still these are alternatives that could be attractive for some people.

    For those people who need life insurance protection, whole life policies can also build up cash value over time and offer tax advantages. And there’s the possibility for dividends, which can be taken out as cash or reinvested in the policy itself.

    However, there are risks as well. Dividends aren’t guaranteed and tapping into the cash value of a policy can reduce its value and death benefit, as well as increase the chance it will lapse or bring a tax liability if the policy terminates before the insured’s death.

    Similarly there are advantages and possible risks for annuities, which can provide tax-deferred savings and guaranteed income for retirement. Some annuities offer guaranteed interest rates and protection from market volatility. But there can be inflation risks and taxation or survivorship consequences, depending on how they are used. Also like all insurance contracts, annuities need the backing of a strong issuer (Check out MassMutual’s financial strength here).

    Investors looking at life insurance or annuity options may want to consult a financial professional about their individual circumstances.