Market Risk - The Top Risks of Cash Building Life Insurance

So cash value life insurance or cash building life insurance always looks good on paper. Doesn't matter if it's whole life, variable life, universal life, index life, it's all going to look good on paper. But we wanted to explore what can actually go wrong in real life. So during this series, we're going to explore the top six risks that can make your cash building life insurance policy go wrong or sideways or not work out the way it looks like it should on paper. Hey, it's Matthew Decker with Cash Value Life Insurance Reviews. In this series, we're going to go in order of least risky to most risky. And today we're starting with number six, market risk and interest rate sensitivity. Now, some of you might be thinking market risk should be like the number one risk associated with these policies. And I disagree. Obviously, it's number six. It's not number one. The reason that we've listed market risk as the least risky of the six is because you can't control what's going to happen in the market. And market risk is going to function differently with different types of products. But generally speaking, as long as we have decent volatility in the markets, these cash building life insurance policies should perform reasonably well. And since you can't control what the market's going to do, that's why market risk shows up as number six and not number one. The best thing that we can do to mitigate the risk associated with market fluctuations is make sure that we design the policy the right way so that we're maximizing the cash value, minimizing the death benefit, and therefore minimizing the fees and the commission on the contract. And if we do those things right, the risk associated with the markets not performing well is mitigated as much as is possible. Furthermore, market risk pretty much exists in almost every other investment vehicle that exists. In fact, we like to say, if there's no risk, there's no return. So if you're expecting to not take any risk, then you better be prepared for no return. You'll notice at the beginning of this video, I tied market risk to interest rate sensitivity, and we paired them together for a reason. Because see, most of these products, this would be anything that's not a variable cash building life policy. So all of your fixed cash building life insurance policies are gonna have some kind of market performance protection built in. Many of them will have a floor or a guaranteed minimum return. And in that case, we've already mitigated a lot of the market risk. So since these fixed cash building life insurance policies have already mitigated the market risk side of this equation, this is why we paired interest rate risk or interest rate sensitivity as the sixth reason that these things can go sideways for the fixed cash building life insurance policies. And let me explain that to you. If interest rates go up, these cash building life insurance policies that are fixed, your caps, your rates, your participation rates, and your fixed accounts should all go up. And the opposite is also true. If interest rates come down, your fixed rate will come down. Your caps will come down. Your participation rates will come down. And if there's a spread on the contract, the spread works the opposite way. The spread will go up if interest rates come down. The spread will go down if interest rates go up. If you wanna learn more about caps and rates, we have a longer video that we did a couple of years ago. We'll link that above and below. If we're referencing caps and rates in that older video, those rates aren't still valid because we're two years into the future, but the information is still great. So let's pair these two risks together. The worst thing that can happen in these policies is a combination of the market not performing year over year for some extended period of time and interest rates falling. If interest rates fall, your caps will come down. Your rates will come down. Your fixed rate will come down. And if the market doesn't perform, you won't get the indexed performance that you were hoping for. So that would be the worst case scenario with these two forces working together against you. The market doesn't perform and interest rates come down. Now, fortunately, we're in an environment where interest rates are rising. And so my personal opinion is these policies will continue to perform very well into the future throughout a rising interest rate environment. And they're a perfect alternative to investing in bonds, which will suffer in a rising interest rate environment. So that's the sixth risk, maybe the least risky thing about these policies that can make them go sideways, market volatility, market risk, and interest rate sensitivity. Next time, I'm gonna be discussing the non-guaranteed elements of these policies. Stay tuned. You