With the rise of term life and the advent of new products, the life insurance industry has adopted a very narrow and negative focus on whole life insurance.
Popular financial media have limited the debate over coverage choices to examining the investment value of policies. This shift, however gradual, has driven purchasing trends over the last 20 to 30 years.
As a result, the public too often discounts the true macro intergenerational benefits of a product that provides not only guaranteed distribution at death, but also critical cash accrual that can help fulfill various financial commitments while clients are still living.
Consider the following misperceptions the life insurance industry faces.
WL insurance is often referred to as an expensive drain on an investor’s funds and a drag on any retirement savings program offering an average annual return that doesn’t keep up with historic averages for the Standard & Poor 500. Investing in the stock market is portrayed as a much better way to accumulate wealth and as a more sound investment strategy over the long-term, regardless of fluctuations in the value of equities.
Advice is often summed up in the popular newsstand mantra, “buy term, and invest the rest.”
The “buy term” strategy rose to fame in the 1980s as a cheaper alternative to permanent protection. This was at a time when interest rates soared to double digits. The crux of this theory, however, lies in the “invest the rest” portion of the approach–something only a very few well-disciplined investors have been able to achieve.
Another misperception from the financial world is that life insurance is an “extra” that somehow exists outside of a sound financial strategy. Life insurance is described a necessary evil bought solely for its death benefit features for the short-term. Investors are told, “When you’re older, life insurance won’t be necessary.” So, financial reps advise consumers to shop for the cheapest option available, as they do with homeowners or car insurance.
As new products enter the realm, however, the shortsightedness of these misconceptions is coming clear. As stock market volatility continues to impact spending, more and more people are seeking alternative products that adapt to their changing needs. Here, whole life shines. Some examples follow.
Wealth accumulation. With whole life, policyholders can be assured of the deliverability of the death benefit and, therefore, leverage its presence by using other assets during their lives.
Though not typically viewed as a traditional retirement tool, the tax-deferred build-up of cash in a WL can supplement income in retirement and, from a planning perspective, enable clients to pursue a more aggressive asset allocation mix. Thus, clients who failed to achieve a specified growth target for retirement can use the cash value as a much-needed supplement to meet a variety of financial commitments.
Case in point: a $1.8 million amortizable portfolio with WL offers more cash flow than $2 million in income only.