Taking cash off the table: Life insurance, annuity alternatives

By Allen Wastler
Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
Posted on Mar 22, 2018

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

Often that means shifting into cash. But cash doesn’t offer much of a return these days. Although interest rates have been ticking up in the last year, average returns for money market funds and savings accounts remain low compared to typical returns in other markets.

Of course, if consumer prices generally go down then the value of cash on hand goes up. And with inflation relatively tame over the last few years, that’s made cash holdings somewhat attractive, despite the low growth prospects. That equilibrium could get disrupted, however, if inflation starts to rise.

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.

But the last decade has illustrated dangers in these areas too. Real estate prices were roiled in the 2008 recession. Oil and other commodity markets were hit with volatility in the following years as well.

Recently cryptocurrencies, essentially financial instruments based on computer code, have crept into the world’s investment mix. But many investment professionals advise against them.

“In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending,” famed billionaire investor Warren Buffett said in a recent television interview.

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.


More from MassMutual…

Winning with a steady investment strategy

Life insurance: Treat the cash value with care

Term-perm conversions

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The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.