Last Monday, I received from a colleague a clipping of personal finance columnist Lynn Brenner’s latest “Ask the Expert” column. The column runs in Newsday, a daily newspaper serving the metro New York and Long Island communities, as well as online. Basically, it’s like Dear Abby but on financial matters. You can read the entire article here, but the short version is a reader asks the following question:
My husband bought a $150,000 flexible premium life insurance policy more than 20 years ago. He’s now 70, and our children are adults. I don’t think we’d buy the policy today if we didn’t own it. The insurer says our $1,000 annual premium will maintain it until 2014. The cash surrender value is about $6,000 and declining a little every year. The agent wants to talk about switching to a different policy. What should we do?
To which Brenner’s ultimate answer is:
The bottom line. As you grow older, you may no longer need life insurance.
Yeesh. No wonder why individual life numbers took such a hit in recent years. with experts like this, who needs charlatans?
Now, Brenner didn’t start with that. She went through some other options, such as surrendering the policy, reducing the face amount of the policy to a point where the insured no longer needs to pay premiums, or exchanging the policy for an annuity. Interestingly, she never mentioned a fourth option – selling the policy to a life settlement company – even as an abstract concept. I find myself wondering why. My friends in the life insurance world might not like that option being raised, but it is an option nevertheless, especially since it looks like the secondary life market is here to stay.
This is not the first time Brenner displayed what appears to be a fairly narrow view of life insurance. In another article, she points out that there are three basic reasons for having life insurance: to replace the salary of a breadwinner, to provide cash to pay for estate taxes and to invest on a tax-deferred basis. Now, I have only been in the life insurance business (to the extent that a journalist can say he is “in the business”) for about a year, and even I know there is more reason than that to buy life insurance.
First off, Brenner’s off when it comes to replacing salary. How about replacing income? Surely there are other ways of bringing in money aside from punching a clock, all of which are insurable interests. Perhaps Brenner’s word choice was an accidental one, but I doubt it. She’s a financial reporter with many years of experience. She ought to know better before telling people about the inherent worthiness of a pretty important product such as life insurance.
Her second reason is a valid one, I suppose, but to be honest, I’ve known a lot of people who have bought life insurance and even some who unfortunately have had to collect on it. Not one has ever said that they bought the insurance to pay off estate taxes. Not one. A few said they did it (partially) to offset funeral expenses, but as a hedge against estate taxes? Nope. Now, I understand how life insurance can and is used that way, just as I can understand the increasing opportunity for insurance reps and financial planners to work together. But it strikes me as a little odd to put that reason out there before something more conventional, such as maintaining the family’s lifestyle, paying off a home, providing for college, funding retirement and other reasons.
Her third reason comes off as the most defensible one, or at least the least incorrect of the three. Indeed you can use life insurance as a form of investment, especially if you look at it from an estate planning perspective. But Brenner does not focus on that, either. She simply looks at life insurance as a means of capital generation over time. Not as a tool of wealth preservation. To that end, and especially in the context of her article I referenced in the beginning of this post, I am beginning to think that Brenner just does not get life insurance. Either that, or the demographic for Newsday is so low-income that priorities such as wealth preservation don’t come into the conversation all that often. (I don’t know Newsday or its readers, so I might we way off the mark there.)
All told, I just got a bad feeling reading these articles. We are in an age where our lives are more insurable than ever before, and yet the public knows less about insuring them than ever, too. And while the industry is doing some really innovative things to educate today’s and tomorrow’s policyholders on what insurance is and why it is so important, I cannot help but feel a little depressed when a veteran financial columnist and business reporter such as Brenner so completely misses the mark on a family of financial products that has done so much for the American public.
One of the first things my boss told me about life insurance when I joined National Underwriter was how life insurance was a central part of preserving the middle class in the wake of the Great Depression. One would think that as we claw out of the Great Recession, the value of life insurance would be similarly appreciated. Apparently not. How sad. Good thing I don’t read Newsday. Otherwise, I’d cancel my subscription.