Question: As a 60-year old, should I buy equity-indexed life insurance?
Answer: Most 60-year-olds don’t need equity-indexed life insurance, says Jorie Johnson, a certified financial planner at Manasquan, New Jersey-based Financial Futures. The reason: this product is better suited for younger investors – those in their 30s and 40s – who have a long time to build up the equity-indexed cash value of the account and are more likely to have families who might need the death benefit, says Dan Cotter, a principal and director of risk management at Rahmann Financial in Cleveland, Ohio. Furthermore, you probably shouldn’t even consider such a policy unless you’ve already maxed out other tax-favored accounts like a 401(k) and IRA. Even then, you might want to consider an annuity over this product, says Johnson.
Equity-indexed universal life insurance (EIUL) is a life insurance policy merged with an investment account. Part of the premium pays for the cost of insurance; the other part builds up cash value by investing in a stock index like the S&P 500. The main criticism of this and other universal life insurance products is that they can be expensive, with surrender charges for policies canceled within the first ten years and significant administrative, mortality and investment fees. On top of that, equity-indexed life insurance products tend to cap the amount of annual gains at between 11 – 14%