I realize from reading answers here that Whole Life insurance is not the best investment vehicle:

When is Cash Value Life Insurance a good or bad idea?

How can life insurance possibly work as investment?

My question is: are there other investment vehicles that protect you from loss? E.g. an agent proposed a life insurance to me which is capped, e.g. earnings are tied to S&P500 however they cannot go above 9.5% and cannot go below 0. That's a nice property that protects me against market going down.

Any thoughts on whether it's a good idea to invest in such policy? What are the alternatives?

Links to products:
* http://ameritas.com/Products/Life/ExcelIndexUL/index.htm
* http://ameritas.com/Products/Life/ExcelPlusIndexUL/index.htm

  • Is it tied to the index or total return, including dividends? And then, is it 100% participation or some percent of that? It wouldn't take much to use historical data to see how this offer would compare to an investment in a stock index. Consider, there are more up years than down, and you'll be clipping the great years like we are seeing now, in exchange for avoiding any less than 0 years. Commented Oct 31, 2013 at 2:18
  • @JoeTaxpayer: it's tied to the index, that's at least my understanding. It's 100% participation, but capped from above at 9.5%.
    – Drakosha
    Commented Oct 31, 2013 at 3:57
  • If so, that's about a 2%/yr hit, long term. Of the quoted 10%/yr long term return, 2% or so is from dividends, just keep that in mind as well when analyzing. Commented Oct 31, 2013 at 10:13

3 Answers 3


The question that I walk away with is "What is the cost of the downside protection?"

Disclaimer - I don't sell anything. I am not a fan of insurance as an investment, with rare exceptions. (I'll stop there, all else is a tangent)

There's an appeal to looking at the distribution of stock returns. It looks a bit like a bell curve, with a median at 10% or so, and a standard deviation of 15 or so. This implies that there are some number of years on average that the market will be down, and others, about 2/3, up. Now, you wish to purchase a way of avoiding that negative return, and need to ask yourself what it's worth to do so.

The insurance company tells you (a) 2% off the top, i.e. no dividends and (b) we will clip the high end, over 9.5%.

I then am compelled to look at the numbers. Knowing that your product can't be bought and sold every year, it's appropriate to look at 10-yr rolling returns. The annual returns I see, and the return you'd have in any period. I start with 1900-2012. I see an average 9.8% with STD of 5.3%. Remember, the 10 year rolling will do a good job pushing the STD down. The return the Insurance would give you is an average 5.4%, with STD of .01. You've bought your way out of all risk, but at what cost?

From 1900-2012, my dollar grows to $30080, yours, to $406. For much of the time, treasuries were higher than your return. Much higher.

It's interesting to see how often the market is over 10% for the year, clip too many of those and you really lose out. From 1900-2012, I count 31 negative years (ouch) but 64 years over 9.5%. The 31 averaged -13.5%, the 64, 25.3%.

The illusion of "market gains" is how this product is sold. Long term, they lag safe treasuries.

  • Nice write-up. I'd like to have seen a view over a shorter time period, but that's basically irrelevant. You've given a clear and detailed answer. Nicely done. Commented Oct 31, 2013 at 19:56
  • What time frame would you like? The spreadsheet is easy to manipulate to the years of interest. Commented Oct 31, 2013 at 20:25
  • Your timeframe is 112 years. I'd rather see, arbitrarily, the last 25 years. That could be someone who started at 40 and is now 65 and retiring. Might provide a nice alternative view to your longer timeframe. Obviously, still very arbitrary though. Commented Oct 31, 2013 at 20:44
  • 2
    The 87-12 returns are 11.9%, STD 6.19, and insurance 6.2%, STD .7%. If we take non-rolling periods, I am at 11.2%, but STD up to 18. From 80-07 10 year treasuries averaged 10.86% return per year. (wow) Commented Oct 31, 2013 at 21:03
  • 1
    @Drakosha - I use CAGR Compound average growth. (yr1*yr2....*yrN)^(1/N) The result is what an investor would actually see, less the annual expense, so a 9% average becomes 8.9% for some, 8.98% for those in an ultra low cost fund. I offered an apple to apple comparison. If you google my name and CAGR, you'll see I am knowledgeable on this issue. Commented Nov 1, 2013 at 12:05

Pretty simple:

When is Cash Value Life Insurance a good or bad idea?

It is never a good idea.

How can life insurance possibly work as investment?

It can't. Just as car, home, or health insurance is not an investment. Note for counter example providers: intent to commit insurance fraud is not an investment.

  • The cost for the life insurance of a whole life policy tends to be higher then term. It is easy to hide that cost, where in term it is pretty much impossible.
  • The investment return is "tied" to S&P 500, the cost for their mutual funds also tend to be higher then the standard fund.
  • They ensure that you will not get a zero return, that guarantee should and does cost you.

Why not live your life so in 15 or 20 years you are debt free, have a nice emergency fund built and have a few 100 thousand in investments? Then you can self-insure. If you die with a paid off home, no debt, 20K in a money market, and 550,000 in retirement accounts would your spouse and children be taken care of?


I need to see the policy you are referring to give a more accurate answer.

However what could be happening, it’s again the way these instruments are structured;

For example if the insurance premium is say 11,000 of which 1000 is toward expenses and Term insurance amount. The Balance 10,000 is invested in growth. The promise is that this will grow max of 9.5% and never below zero. IE say if we are talking only about a year, you can get anything between 10,000 to 10,950.

The S & P long-term average return is in the range of 12 -15% [i don't remember correctly]
So the company by capping it at 9.5% is on average basis making a profit of 2.5% to 5.5%.

IE in a good year say the S & P return is around 18%, the company has pocketed close to 9% more money;

On a bad year say the Index gave a -ve return of say 5% ... The Insurance company would take this loss out of the good years.

If say when your policy at the S & P for that year has given poor returns, you would automatically get less returns.

Typically one enters into Life Insurance on a long term horizon and hence the long term averages should be used as a better reference, and going by that, one would make more money just by investing this in an Index directly.
As you whether you want to invest in such a scheme, should be your judgment, in my opinion I prefer to stay away from things that are not transparent.

  • i added links to the products in the question
    – Drakosha
    Commented Oct 31, 2013 at 19:21
  • 1
    I went to the links. Their brochures don't give the participation rate or cap depending on product. A sales pitch without full details. Part of why I steer clear of these. Commented Nov 3, 2013 at 1:51

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