Offer your thoughts or opinion on the input financial query or topic using your financial background.

Whole life insurance - capped earnings
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.