Taking cash off the table: Life insurance, annuity alternatives

Allen Wastler

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 Apr 21, 2022

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

That can be a risky strategy, as typically a steady investment plan avoiding knee-jerk reactions to sudden market movements pays off in the long run. Still, there are times or opportunities where an investor wants to put money into an area less influenced by short-term market movements.

Cash?

Often that means shifting into cash. But cash hasn’t offered much of a return these in recent years. Interest rates, historically speaking, have been relatively low, making average returns for money market funds and savings accounts less attractive compared with typical returns in other markets.

However, inflation has been on the rise, leading the Federal Reserve to signal that it will start to raise interest rates. That means cash accounts could start earning more over the long run. However, a tug of war in policy between inflation and interest rates could lead to some volatility and unpredictability in returns as well as the loss of buying power in cash holdings. (Learn more: How higher interest rates may hit consumers)

Commodities?

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 history has illustrated dangers in these areas too. Real estate prices were roiled in the 2008 recession. Oil and other commodity markets are subject to persistent volatility as well. And collectibles can have their own ups and downs.

Crypto?

In the last few years cryptocurrencies have crept into the world’s investment mix. But many investment professionals advise against them. (Related: Should crypto be in your portfolio?)

“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 television interview.

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

Life insurance and annuity options

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 at a rate guaranteed by the insurance company and offer tax advantages. And there’s the possibility for dividends, which can be taken out as cash or reinvested in the policy itself. (Learn more: Whole life insurance: Balancing protection and accumulation)

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.

Discover 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.