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Life Health > Life Insurance > Permanent Life Insurance

Permanent Life Insurance: A Win-Win Product

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Some call it the herd mentality, that thing that led to the economic roller coaster of the past several years. People were lured in by the promise of “easy money.” They had forgotten about the tech bubble and all of the other exciting climbs to the top followed by horrifying drops. They poured their assets into the market for fear of missing out on the right opportunity.

In those days, anyone with permanent life insurance — particularly the kind that can build substantial cash values –apologized for their lack of sophistication. Why settle for a paltry 4-8 percent steady return (tax deferred and possibly tax free), when they could be enjoying double-digit taxable returns in companies who understand the importance of what they say and how they say it on analyst calls and to the all-knowing and infallible rating agencies?

The case for permanent life

I’m not here to knock investing in the markets. I am here to tell you that permanent life insurance is (or may be) a very sensible part of Middle America’s portfolio. Here’s why:

  1. Guarantees: They come at a price (3 percent or better instead of non-guaranteed returns that hover around 12 percent), but they are guaranteed.
  2. Lack of volatility: The money you saw there yesterday or last month or last year is still there when you need it most — and possibly more of it.
  3. Tax favored treatment: There are several issues here:
  • The growth is tax deferred (you probably understand that or you wouldn’t be reading this).
  • The growth can be income-tax free.
  • You can have access to the money (sometimes called “living benefits“) without having to pay taxes on the money you use.
  • The interest you pay on the money you use may be largely (if not completely) paid to yourself (sometimes called “being your own bank”).
  • It will be there when your family most needs it, whether as a “living benefit” or as a death benefit.

It’s wonderful to be able to spout the investment strategy du jour that is revered by the newest, sharpest and hottest investment minds. It’s particularly wonderful if you are in the top 1 or 2 percent of Americans that might actually benefit from such a risk-driven strategy. But if you are not one of the hoi polloi — or more importantly, if your clients are not — you might give strong consideration to the safety, security, guarantees and permanence of permanent cash value life insurance as one of their assets.

A wake-up call
Let me tell you a true story. It happened yesterday. I sat with an old friend and for the first time he asked me about life insurance. As it turns out, he purchased a term policy from one of the finest insurance people in town. The term expired just a few days prior and he was bemoaning the fact that he really could not afford the $30,000 premium to keep his insurance. His family is now in some jeopardy. He does not speak highly of the agent. Had the agent been more patient, forceful, consultative or whatever it took at time of sale, the client would either have clearly understood the chance he took when buying term insurance, or he would have bought at least some permanent life insurance. Certainly, had the agent reviewed the client’s plan every year or two, the client would have seen it coming. It seems the agent treated my friend like one of the top 2 percent of Americans (which he is not), and that is an easy pitch for a client to buy. But in the end, the emperor’s new clothes just didn’t fit. Reality caught up with both the client and the agent, and neither was very happy. Eventually, everyone must face the facts.

There is nothing wrong with a portfolio that includes registered products. There is also nothing wrong with a portfolio that includes permanent life insurance. There is everything wrong with a portfolio that never included an accurate, unbiased discussion of the role permanent cash value life insurance can play.

Alan Protzel is a director at The Marketing Alliance (TMA). Headquartered in St. Louis, Mo., TMA is one of the largest organizations providing support to independent insurance brokerage agencies. Mr. Protzel can be contacted at [email protected].