Whole life insurance may no longer hold the prominent place in financial planning that it enjoyed during its heyday, but this oldest of insurance products got maximum exposure during a media roundtable hosted by four mutual insurance companies here on October 4th. Representatives of the four carriers — New York Life, MassMutual Financial Group, Northwestern Mutual Life and Guardian Life — used the occasion to dispel misconceptions about the product and tout its valuable role in insurance planning.
“If a client needs insurance for their whole life, and we can structure an arrangement by which it fits into their budget and their planning, then whole life is a very appropriate product,” said Anthony Domino, president of Associated Benefit Consultants, White Plains, N.Y., a Guardian Life agent and immediate past president of the Society of Financial Service Professionals, Newtown Square, Pa. “If you live to normal life expectancy, the product will actually be less costly than pure term insurance over same time frame.”
Meridee Maynard, senior vice president-life product for Northwestern Mutual, Milwaukee, Wis., said that whole life insurance should form the foundation of any financial plan, and not only because the product’s permanence. An often overlooked advantage is the product’s flexibility and “living benefits:” The cash value accumulating inside the contract can act as a “a second emergency fund” to help cover retirement, medical expenses, long-term care, a down payment on a house or other needs.
Richard Nolan, a general agent at Lee-Nolan Associates, a MassMutual Agency based in Little Falls, N.J., agreed, observing that whole life’s settlement options extends to the product’s ability to function as a fixed annuity, providing policy beneficiaries with a lifetime income stream. And while withdrawals against the cash value must be rapid with interest (assuming the insured opts to maintain the pre-withdrawal death benefit), the added cost ultimately accrues to the policyholder’s benefit.
“In effect, you’re paying interest back to yourself,” said Nolan. “As the owner of a whole life contract, you can be your own banker. Also, when you borrow money from equity, the contract continues to grow in value. You’ll still receive a dividend next year, just as if you had never borrowed.”
The dividends, the panelists said, is a key product differentiator, not only in comparison to term insurance, but also other types of permanent insurance, including universal and variable life. While dividends — a return of premium — can be used to purchase additional insurance (paid-up additions) or be received as income, a popular option is to apply them to the annual premium.
Beyond a certain point, the dividends can exceed the premiums, obviating the need for policyholders to continuing payments. As the policy effectively pays for itself, Nolan said, policyholders may feel freer to spend down other retirement retirements assets, such as a 401(k) or IRA, which they might otherwise want to leave as a legacy to children or grandchildren.
Despite the advantages of whole life insurance, the panelists acknowledged the product’s diminished use in insurance and financial planning relatives to decades past. They attributed the decline to a number of trends, including the proliferation of alternative (and “sexier”) risk protection and investment products; the rise of do-it-yourself insurance shopping, particularly since the advent of the Internet; a shrinkage of the career agency system; and, in connection with the last, a reduction in the number of mutual insurance companies that sell whole life policies and that remain committed to the costly and time-intensive training needed to effectively market the products.
“The public [life insurance] companies’ primary constituencies are stockholders who are interested in short-term profits,” said Domino. “By contrast, mutual insurance companies’ primary constituencies are policyholders, who own the companies and underpin their strength and stability.”
Chris Blunt, a senior vice president and COO-life and annuity, at New York Life, concurred, adding that because the public insurance and annuities companies have a less capital-intensive business than their mutual counterparts and have to focus on delivering investment returns every 90 days, they necessarily tailor their marketing efforts to products that are easier to sell: variable annuities, whole and universal life, among other solutions.
To be sure, said Maynard, UL and VUL products have a place in insurance planning, specifically in cases where the client desires not only the flexibility afforded by permanent insurance, but also the ability to “restructure” premium payments. This demand, she added, is particularly strong in business and estate planning, and among clients over age 55.
But Maynard stressed that, where clients’ long-term financial requirements and budget can justify it, whole life should be purchased to cover at least part of their life insurance needs, the balance potentially to be fulfilled by term insurance. She added that since the Pension Protection of 2006, whole life insurance has been enjoying greater exposure in the workplace, in part because advisors have more opportunities to meet with company employees to counsel them on insurance and other financial needs. And she anticipates additional whole life sale stemming from the PPA-sanctioned development of combo insurance/long-term care and annuities/long-term care products.
David Woods, president of the Life and Health Insurance Foundation for Education, Arlington, Va., stepped out of his moderator role at the close of the roundtable to note that whole life insurance has long been a key component of his own financial planning and has only grown in importance.
“Those [whole life policy] cash values are now available to me and my wife to fund a trip around the world, an emergency, gifts to our kids and provide for a comfortable retirement,” he said. “In short, I understand the huge flexibility and value that is has to me as an essential part of my retirement planning. From a personal standpoint, this is the best piece of property I own.”