Chapter 62. Investment-Oriented Life Insurance

FRANK J. JONES, PhD

Professor, Accounting and Finance Department, San Jose State University and Chairman of the Investment Committee, Salient Wealth Management, LLC

Abstract: Insurance and investments are distinct concepts. This distinction leads to the development of various insurance and investment products. In practice, however, there is an overlap between some types of insurance products and investment products. This overlap occurs due partially to specific tax advantages provided to investment-oriented life insurance products. The two major types of investment-oriented life insurance are cash value life insurance and annuities.

Keywords: Pure insurance, investment-oriented insurance, cash value life insurance, whole life, variable life, universal life, variable universal life, annuities, variable annuities, fixed annuities, guaranteed investment contract (GIC), participating policies, general account products, separate account products, immediate annuity, deferred annuity, credited rate, flexible-premium deferred annuity (FPDA), single-premium deferred annuity (SPDA)

This chapter begins with an overview of insurance. The remainder of the chapter considers the major types of investment-oriented life insurance, mainly cash value life insurance and annuities.

INSURANCE

Insurance is defined as a contract whereby one party—the insured—substitutes a small certain cost (the insurance premium) for a large uncertain financial loss based on a ...

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