GUL Cash Accumulation Fund

I have never spent much time studying life insurance. When prompted I've generally followed the common personal finance rule of thumb to buy term life insurance vs whole life, universal, etc.

However, given my chronic health condition (diabetes), I found it convenient and cheaper to utilize a Group Universal Life Insurance benefit at work where I could purchase a limited amount of life insurance for myself without having to go through insurance health questions. With my recent employment change I found myself enrolling with the new employer's GUL benefit and assessing the insurance policy's cash accumulation fund option.

I should also mention I think it key to keep assessments of your life insurance needs and investment options separate. When you start to co-mingle your evaluation of options it gets messy and less optimal financial decisions may result. For example - I first evaluated my life insurance needs and made the decision to enroll in the GUL from a cost/need perspective. Only after this point do I begin to consider the cash accumulation fund and whether its a worthy investment option for us.

So looking at the cash accumulation fund, the benefits highlighted include:

a tax deferred cash fund, taxes will be on any gains after contributions and life insurance costs are deducted
a minimum of 4% return with potential to be higher
funds can be withdrawn at any time for any reason, and for as little as $200

Whats the downside? It sounds appealing with the lack of appealing investment opportunities right now: if I lose my job or decide to cancel the life insurance, I may have to take an untimely gain on our investment.

With my view of the stock market being unattractive at current valuation and lack of alternative investment opportunities I've currently been focusing our monthly cash flow on reducing our mortgages and building cash. I think the cash accumulation fund may be more attractive than either. The cash accumulation fund has a guaranteed higher interest rate that our primary fixed mortgage - rather than paying down our mortgage Im thinking we should be directing the money into this fund and can always use the funds to pay down our mortgage at a later date if needed.

I'm going enroll in the cash accumulation fund and see if I like it. Please comment if you have use a life insurance cash accumulation fund and tell us about your experience.

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Comments (3)

Stay away.... U are better off investing that money.... The cash accumulation is a scam.... The cost of insurance is high and the 4% will be on a lower basis than u think.

Put that money in a tax free bond fund and u will do better w less headaches

Posted by adrian | October 25, 2014 10:01 AM

Hi there. I'm an actuary who works in life insurance. Your plan sounds promising, but it's possible your policy has other fees that could drain your cash accumulation fund (the guaranteed 4% is probably before those fees). You are entitled to an "illustration" at least annually that can show your projected cash accumulation fund under different funding scenarios -- you just have to request it. Good luck!

Posted by Anonymous | October 25, 2014 8:44 PM

I would love to add that in case you do not actually have an insurance policy or maybe you do not remain in any group insurance, you might well benefit from seeking assistance from a health broker. Self-employed or people having medical conditions ordinarily seek the help of an health insurance broker. Thanks for your article.

Posted by Anonymous | December 17, 2014 8:06 PM