Avoiding Market Losses
Worried about market volatility? Learn how permanent life insurance offers a safer, more stable investment strategy with protection against losses. Discover how this conservative approach can help preserve your wealth and bring peace of mind in uncertain markets.
MAPFL BLOG
Stop Worrying About Market Crashes - Here’s a Safer Investment Option!
So let’s have a conversation about avoiding market losses. Most financial advisors are hyper focused on riding that bull market ride. But what goes up must come down, and it always does. And most consumers out there have a really hard time with the volatility of the market. So one of the unique attributes of having money in a life insurance contract Is it has a floor?
Yes, there’s a downside to that. That means there’s also a ceiling, so there’s a maximum to how much you make, but there’s also a maximum to how much you can lose. This makes a life insurance contract a very conservative strategy for those who can’t stomach the volatility of the market. Me personally, I don’t like that volatility.
Most people I know, when they see the market crashing, what do they do? They pull their money right out of the market when they shouldn’t. It’s critical that they write it back up, but how many people pull because they’re scared that’s going to keep going down. So if you or someone you know, a loved one, is that way, take a look at permanent life insurance.
It’s real. Buy it for the right reasons, educate yourself on how it works, and you will be happy.
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In indexed universal life (IUL), the “floor” is the minimum interest credit applied to your cash value for a crediting period—often 0%—so a negative index year generally credits no loss (but see fees below). Returns are also limited by caps/participation rates, which trade upside for downside protection. Forbes+1
Yes, it can. The floor applies to the index credit, not to policy charges. Universal life policies deduct ongoing costs (insurance charges, expenses, loan interest, etc.), so a 0% credit minus charges can still reduce cash value; loans or poor performance can also pressure the policy. Also, IUL cash value is not invested directly in the stock market. Investor+1
They’re non-guaranteed levers the insurer uses when crediting interest from an index:
- Cap = maximum credited rate for a segment;
- Participation rate = % of the index change used;
- Spread (or margin) = amount subtracted before crediting.
Insurers can adjust these parameters over time (subject to the policy). Guardian Life+1
- Death benefit is generally income-tax free to beneficiaries under IRC §101(a). Legal Information Institute
- Withdrawals/loans are typically tax-advantaged while the policy stays in force, but a lapse or surrender with a loan can trigger taxable gain. Also, policies that become MECs (fail the §7702A 7-pay test) lose some favorable withdrawal/loan treatment. Coordinate with a tax pro. Nerd’s Eye View | Kitces.com+1
It may fit clients who dislike volatility and value a defined downside floor with insurance protection—understanding the trade-off is capped upside and policy costs. Many investors struggle with timing markets during drawdowns; that’s one reason some prefer guardrails over
KeyPoint's for Avoiding Market Losses
- Market Volatility and Investor Reactions:
- Mario highlights how many financial advisors focus on the benefits of riding a bull market (when the market is rising). However, they caution that what goes up will inevitably come down, leading to market volatility.
- Many consumers struggle with market volatility, and their common reaction is to pull money out of the market during downturns, which can be a mistake.
- Life Insurance as a Conservative Strategy:
- Mario introduces life insurance contracts as a more conservative financial strategy for those who cannot tolerate market volatility. Life insurance policies, specifically permanent life insurance, have a floor, meaning there is a limit to how much one can lose.
- Although there’s also a ceiling (limit on potential gains), the security of knowing there’s a cap on losses makes it an appealing option for conservative investors.
- Behavioral Finance Consideration:
- It emphasizes the emotional side of investing, particularly how fear can lead people to make poor financial decisions, such as selling investments when the market dips, instead of riding out the downturn.
- The Case for Permanent Life Insurance:
- Mario advocates for permanent life insurance as a real and reliable financial tool when purchased for the right reasons.
- Educating oneself on how life insurance works is key to making an informed decision, and it offers long-term satisfaction if chosen wisely.
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Avoiding Market Losses
Additional Points (for Enrichment)
- Understanding the Structure of Life Insurance Contracts:
- You could delve into the mechanics of life insurance contracts, explaining the difference between term and permanent life insurance. Emphasize the benefits of permanent life insurance, such as cash value accumulation, tax advantages, and its potential use as a supplemental retirement income strategy.
- Why Investors Struggle with Volatility:
- This could lead to a discussion on behavioral finance, including the psychological factors that cause investors to make rash decisions during market downturns. Concepts such as “loss aversion” and “herd behavior” might help contextualize why many investors struggle to stay calm when markets decline.
- Risk Management Through Diversification:
- While life insurance is a conservative tool, it may be useful to also discuss how it fits within a larger diversified portfolio. Explain how a combination of life insurance and other investment vehicles (stocks, bonds, etc.) can balance risk and reward, especially during turbulent market periods.
- Long-Term Financial Planning:
- You can touch on how incorporating life insurance into a long-term financial strategy provides not only protection but also flexibility for wealth-building over time, especially for families who need stability.