Is it a good time to pull out of the market? Is it a good time to enter the market?

During these days of market setting records where the bulls are busy steam-rolling bears, one might take a moment to consider some creative, alternative investments outside the stock market itself such as life insurance.

“Life insurance?!?”

Yes, life insurance.

The subject of life insurance typically conjures up two dark thoughts: death and pushy salesmen, both of which most people want to avoid. However, as far as I’m concerned, life insurance represents just another boring slice of a well-diversified portfolio, especially since I consider life insurance not a cost, but an investment.

Yes, an investment. Little do most people realize that with the right type of life insurance in place (Universal Life, not Term Life), there is a very likely chance that if you no longer need the life insurance policy, you can potentially sell it for a profit into what’s commonly referred to as life insurance’s “secondary market.”

Not only do we see life insurance as an investment, but we also know there could be many uses for including it within a diversified portfolio such as:

Tax deferred growth: an investment into a life insurance policy will allow its cash value to grow tax deferred. For those that need life insurance and have contributed the maximum amounts to their 401ks, IRAs and/or Roth IRAs, investing in a life insurance policy could be worthy of consideration given that an investment within Universal or Whole Life policy provides tax deferred accumulation as well.

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Tax-free income: depending on the how a life insurance policy is designed, there could significant cash built up within the policy. With cash in the account, it is highly possible one could withdraw cash from a life policy tax-free. Generating income from the cash value within a low cost, high quality life policy could make this one of the strongest features of adding some Life into your life.

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Long Term Care: some life insurance policies allow the insured to withdraw money from the death benefit in order to take care of various long-term care medical needs.

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Private Pension: one of the strongest advantages of adding some life into your life is to create what we commonly refer to as “The Private Pension.” Imagine this: at retirement, funding a “Private Pension” that through the combination of an immediate annuity and a life insurance policy creates a lifetime fixed income stream, mostly tax free, typically at attractive rates of return that one cannot outlive. The income will never change and is not subject to stock market or interest rate risk. Best of all, because you added a little Life into your life, the amount that’s used to fund the Private Pension gets returned to your family tax free upon your demise due to the death benefit.

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Instant Wealth: Recently, I had a person approach me with some cash on hand, wanting to make an investment into the stock market that would provide the best possible returns for his granddaughter. He had little need for the money, had plenty of money outside this investment and was sure this money was being put to use for one reason and one reason only: to leave behind to his granddaughter. In this case, we told him to stay away from the stock markets and instead invest into a life insurance policy. Why? …

Well, first off, the investment into the life insurance policy instantly far more than doubled his investment and guaranteed it to his granddaughter upon his demise. The risk of the markets and the length of time it would take to potentially grow the money to at least equal the life insurance’s death benefit were completely eliminated, making the investment into the life policy well worth the effort of getting it in place.

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Freeing up principal: We meet many people in retirement that are saving as much as they possibly can for family. For a fraction of the estate value, one might want to consider investing a small portion of their investments into a life insurance policy that guarantees the value of the estate at death. Doing so often provides the insured peace of mind knowing if they wind up “spending all their money” down to the last penny, they will still leave the full value of the estate due to the life insurance policy.

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Paying the tax: in most cases, at least some taxes are due upon that ugly thing called death, creating a likely burden for those left behind. Estates can be taxed, so can IRAs, annuities and a long list of other investments. Needless to say, someone has to write a check to pay the tax, and the “liquidity” of an estate is sometimes limited, especially when one passes away with generally illiquid real estate holdings. In many cases, a quality life insurance policy can be quite a beneficial “gift” to leave behind so that taxes are paid from the tax-free death benefit most life insurance policies provide.

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Perhaps best of all, if one winds up not ever needing the life insurance for any of the reasons above, they would simply sell the policy at a future date. Although there are no guarantees, chances are likely that one can sell the policy into life insurance’s secondary market, recoup their investment and potentially make an attractive profit from the sale, giving the inclusion of a life insurance policy in a diversified investment portfolio another reason for consideration.

Who are the people that purchase life insurance policies from the insured? It’s not The Sopranos or Corleone’s. It’s some of the most largest, reputable financial institutions in the world including Warren Buffet’s Berkshire Hathaway, Lehman Brothers, Credit Suisse and a long list of many others.

Is life insurance something that belongs in your diversified investment portfolio? Without knowing your personal situation, that’s something no one can really answer. But during this time of “is the market overheated or not” and “where should I invest,” perhaps it’s an alternative to consider.