Whole Life Insurance

Whole Life as an Asset Class Alternative

Published in Blog |

During the Coronavirus pandemic, most advisors find themselves stuck at home, looking for ways to continue operating their businesses in both a defensive and an offensive manner. One of the ways advisors can operate in an offensive manner right now is reaching out to current clients and prospects to share strategies with them that maybe they’ve never discussed in the past.

With cash flows currently taking a hit, one opportunity advisors have in this low interest rate environment is to introduce their clients to life insurance as an alternative for money they might already have in their Bucket Plans.

In a recent Bucket Plan On-Demand podcast episode, Dave Alison sat down with Walter Young, Wealth Strategist at Pacific Capital Resource Group, Inc. and C2P Mastermind member, to discuss some of the strategies around using whole life insurance as an asset class alternative. In their conversation, Dave and Walter discuss concepts and ideas for using life insurance and the cash value component of life insurance within each bucket in the Bucket Plan.

Now Bucket

Now Buckets are traditionally comprised of assets that need to be kept completely liquid. Often then people don’t think of life insurance as a Now Bucket alternative to banks, CD’s or cash. Business owners, for example, may decide to keep a lot of cash in the bank in case there’s a need to access it quickly for unforeseen expenses. The problem, of course, is you aren’t earning a lot when you keep that money in the bank.

When talking about whole life as a Now Bucket alternative, what you really want to talk about is having a bucket of liquidity that can earn something better than banks, CD’s or cash, but still has a return that’s respectable. When you use a properly structured whole life insurance policy, you can put a lot of extra money into that policy, which can build a cash value and bill that rate of return.

As Walter explains, “What some people don’t understand is that we can leverage those dollars, meaning that if I need those dollars I can certainly borrow that money out from the life insurance policy for everyday use whether it’s to buy a car, whether it’s to pay for college, whether it’s to pay maybe an unexpected bill or maybe even, in today’s world, you could take advantage of some of the dips in the market.”

What’s nice about borrowing money out of a whole life policy is that, whatever the reason, it’s still potentially earning its dividend in the background. Life insurance is one of the few vehicles out there where clients have this natural ability to continuously earn a dividend on money that’s on the policy. Unlike other vehicles, like a home equity line of credit, if you don’t pay the loan payment back in a timely manner, nobody’s knocking on your door trying to take anything away. When you want to borrow from a life insurance policy there’s also no elaborate application process. It’s usually a phone call, or a button on an application, and within two to four days the money’s in your hands.

Soon Bucket

We’ve all heard of the “rainy day fund.” Cash value can also come in handy for emergencies like an unexpected tax hit or other unforeseen expenses. However, there’s also what Walter calls “the sunny day fund.” When clients see opportunities, whether it’s buying into a depressed market or investing in a real estate project, they often have to look across their asset bases, trying to figure out what they want to sell in order to take advantage of that opportunity.

The nice thing about a whole life policy is that clients won’t have to necessarily sell these other assets. Instead they can take a look at the cash value as that leverage point, to take the money out as a temporary loan, utilizing those dollars as a funding source as opposed to selling a stock portfolio or something else that is actually still productive or that would require taking a tax hit. Cash value is a perfect parking lot to have dollars available because it will still earn a competitive return but also be available to take advantage of opportunities down the road.

For clients’ Soon Buckets, Dave points out, “the old saying ‘cash is king’ could also be applied to cash value is king.”

Later Bucket

For someone thinking about or moving into retirement, Walter explains that it’s a combination of markets and actuarial science that will give clients the highest potential efficiency when it comes to planning a stable and reliable retirement income stream.

“If we use a market-only approach, we know that we are subject to the sequence of returns risk that exists – because of the sequence of returns risk, with a market-only approach we are often limited to a safe withdrawal rate, meaning what you can take out of a portfolio so it doesn’t run out of money after 30 or 35 years.”

When you begin to build cash value in a life insurance policy, however, you can use the cash value as a volatility buffer to pull money out of the life insurance policy during negative years. What that translates to is the ability to take out more of a higher withdrawal rate in general during the positive market years. The safe withdrawal rate is there to help clients handle volatility from year to year, but if they have years of cash value built up already, the cash value will be able to offset negative years and they can now begin take out maybe four, five or six percent distribution rates from their market portfolio, still having the same level of risk as when it was at three or three and a half percent.

As advisors begin to understand the cash value component of life insurance policies it becomes very valuable to match up with the markets in terms of how distribution planning is going to happen. How can you move a client from a three percent distribution rate to a six or seven percent distribution rate with the same level of risk? Walter says you can do it by pairing a market or a volatile asset with a volatility buffering asset, which is cash value in a life insurance policy.


Life insurance is one of the most undermanaged asset classes out there. However, it’s important for advisors to understand its use as an alternative to other asset classes and to be talking to their clients about opportunities for using these policies. There are lots of creative ways to leverage cash value within a client’s Bucket Plan, as well as unique methodologies for utilizing a properly structured policy within each individual bucket.

For a more in-depth breakdown of all these concepts and ideas, listen to the podcast episode, in which Dave and Walter further discuss the mechanics of whole life plans and their experiences with clients who utilize them.

Designed to serve the best interest of clients, The Bucket Plan 1.0 Training educates advisors on how to use a range of planning tools to simplify the planning process for clients while addressing complex challenges. The proven process ensures advisors ask the right questions and identify important considerations needed to design a structured and comprehensive plan that supports the future their clients want now, soon and in the distant future.