There was a time, many years ago, when whole life insurance was a vibrant part of many retirement plans. Tides began changing in the 1970s with the emergence of other products, and whole life lost its leading role. But as we all know, especially in this economy, the only constant is change. Due in part to the rampant financial insecurity gripping the nation and the relative simplicity and stellar long-term track record of whole life, what was once referred to as “your grandparents’ policy” may be making a comeback among senior advisors and the clients they serve.
This is also important when you consider that almost three out of every five Americans still have decided not to purchase life insurance because they think it is too expensive, even though the cost of these policies has remained stable or even dropped over the past decade, according to the Insurance Information Institute. And life insurance needs have certainly not disappeared: Nearly 60 percent of 1,200 adults surveyed by AARP Financial said they had experienced a major life crisis such as death of a spouse, and in the majority of these cases the event had a significant impact on their finances.
While new annualized premiums for individual life insurance dropped 14 percent in the fourth quarter of 2008, whole life premium sales jumped 2 percent, according to LIMRA. Universal life, variable universal life and term insurance were all down considerably during the same period.
“Whole life had fallen out of favor,” notes John Willse, CLU, ChFC, MSFS, a 30-year insurance industry veteran. “It had frequently gotten outpaced in a lot of cases by universal life, but a lot of those policies have not performed as they should have and may have been hard for clients to understand. Whole life gives all the options to the client.”
Willse notes that several companies have been rolling out improved whole life policies offering such features as single, limited or lifetime premiums, plus the ability to make withdrawals and, in some cases, tax-free loans from the policy. Whole life’s level policies can help clients simplify their long-term financial plans. It is also the only form of life insurance that offers a guaranteed death benefit, guaranteed cash value and guaranteed premiums that will never increase as long as the premiums are paid.
“Whole life is easy to illustrate,” adds Willse. “People want coverage but don’t necessarily think they’ll need the policy for income. There are a lot of reasons to use whole life.”
Easier to understand
From the advisor’s viewpoint, whole life generally provides an attractive, affordable product for clients as well as a straightforward design that’s relatively easy to illustrate, sell and service. For the client it can furnish secure low-cost protection along with guaranteed premiums and guaranteed cash values.
“Whole life never went away,” says Mark Phillips, an advisor at the Center for Wealth Preservation in Syosset, N.Y. “Whole life policies have generally grown in value when one factors in interest and dividends. This has been a comfort in comparison to recent stock market performance.”
Phillips, who does no deliberate marketing for whole life, brings it up to appropriate clients when meeting with them to discuss financial planning. “It can be a great wealth-building tool for relatively younger people to build up cash value for future use while serving as the conservative part of a long-term portfolio.”
A world of choices
Whole life insurance does provide choices. It allows the policyholder to borrow against the cash value of the policy which accumulates on a tax-deferred basis and can provide an important financial safety net. Cash can be borrowed from the policy for any purpose, such as supplemental retirement income, education funding, business expenses or emergencies. Dividends, however, are not guaranteed and may be cut, reduced or suspended.
Unlike term, whole life can provide coverage for one’s entire life and the premiums stay fixed regardless of age, health or lifestyle changes, furnishing affordable lifetime death benefit protection with guaranteed cash values that will pay a death benefit whenever the insured dies, even if he lives to be over 100. Such features combined with client angst resulting from an erratic stock market may be convincing producers and clients to reconsider traditional whole life insurance as a product to meet multifaceted, long-term needs.
“Whole life can help young people who are not savers to save in a tax-deferred environment,” says Marc Silverman, an advisor in Miami, Fla. “But other products can offer more.” Silverman often prefers universal life for its flexibility to adjust premiums and increase or decrease the death benefit as needs change.
“What can be attractive about whole life,” says Charles Radcliffe, CIMA, senior vice president and financial advisor for Morgan Stanley in New York City, “is the guaranteed death benefit and guaranteed premium price.”
Radcliffe, who often recommends whole life for estate planning purposes, says objections are minimal when the need for it is apparent to the prospect. “When a client sees the need for it and sees what a whole life policy can deliver, then they typically do not object to the price,” he says. “There are cases however when it’s not justified and a term policy may be the answer to the client’s problem. Whole life is, however, frequently helpful for beneficiaries to pay estate taxes. Heirs will almost certainly need and appreciate this.”
A safe haven
“Everyone’s asking, ‘Where do I stash my money when nothing looks good?’” says advisor John E. Girouard, founder and president of Capital Asset Management Group of Bethesda, Md. “Bank CDs help people sleep better, but low interest rates, inflation and taxes steadily erode buying power. People can actually lose money instead of protecting it.” He adds that corporations for years have been buying mutual insurance policies on their employees’ lives as a way of stashing corporate cash in an untaxed vehicle they can draw down. This strategy can be used as a potential selling point to retail clients. The “ultimate bomb shelter” during challenging times is, according to Girouard, “your grandparents’ life insurance,” that steady standby called whole life.