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July 28, 2004 at 08:00 PM
Participating Whole Life For Senior Clients? Its Worth Considering
If there were such a thing as a stealth life insurance product, it might be participating whole life (par WL).
The product line doesnt often capture the imagination of the public and there is not much discussion about it in the industry. Yet it continues to thrive under the radar screen, remaining a key element in many companies product portfolios. It also has many qualities that make it a good fit for clients preparing for their senior years.
A quick par WL review should shed some light on this and on the products staying power.
Since todays insurance market seems to be all about guarantees, perhaps we should start there. WL always has had them. Timely payment of premium is all that is required to guarantee the policy death benefit and the contractual cash value (assuming no policy loans have been taken).
Unlike some life insurance contracts with guarantees, however, par WL has the ability to provide a substantial non-guaranteed value (dividends). The combination of this value and the guaranteed death benefit has the ability to provide substantial flexibility in retirement while providing a death benefit for heirs.
One cant stress enough that only some of the contracts projected cash value is guaranteednamely, the guaranteed cash value (not that derived from policyholder dividends). This isnt any different, however, than other illustrated cash value life contracts, like universal life, which have both guaranteed values and non-guaranteed values.
For instance, comparing the non-guaranteed nature of par WL cash values to retirement assets like IRAs and defined contribution accounts, the non-guaranteed nature is due to the dividend scale and not the financial markets. This may have some allure to a client with retirement accounts like the ones mentioned, feeling something akin to diversification. In other words, future value in the par WL contract partially relies on the continuing good experience of the insurer and not primarily or directly on the economic environment.
Some clients may be concerned about the projected cash values in a life insurance contract, especially compared with the sorts of return rates often projected for traditional retirement accounts. That is where it is important to point out the beneficial income tax treatment for properly utilized cash values in a life insurance contract.
