Are you one of the lucky, smart individuals that have made a very wise decision to purchase some level of Whole-Life insurance? Not just any type of permanent life insurance protection, I am specifically referring to “Whole-Life” from one of the remaining top-rated, 150+ year-old and still “mutually owned by the policy holders” life insurance companies. Specifically “dividend-paying” whole life insurance (not Universal Life (UL) or Indexed UL, or Variable UL, or Guaranteed UL). Well if you do “own” whole-life insurance in your portfolio, and have experienced its growth in value with zero losses, then allow me to offer my congratulations to you for purchasing this uniquely designed financial tool for its long-term value to both you and your loved-ones.
In addition to its death benefit it can be a valuable asset class…
What I know to be true is that the vast majority of traditional financial advisors (asset managers), and the general public, have bought into and adapted the concept/mentality of a “buy term life and invest the difference” strategy. Have you heard or received that advice personally? This rationale assumes that an income producing person, with loved ones to protect buys “cheap” term life insurance and saves/invests the difference between what funding a permanent life insurance policy would be, and the price of term-life premiums on a regular basis until; a) they have accumulated enough assets to replace the life insurance “need” or b) they retire and no longer have a “need” for life insurance. Reality is that a very high percentage of income earners remain well under protected against a loss of income from death or disability and are not saving/investing enough to come close to being able to retire with a similar lifestyle as they have while working. You see the typical financial planner/advisor is the stocks & bonds broker/money manager and in the business of getting you to invest (assets under management), “hoping” for a better long-term rate of return, but with zero certainty or assurance, and they typically do not advise on anything in the protection world nor do they truly know or understand “actuarial science” (believe it or not). On the other hand, I have been licensed to transact in both insured (guaranteed) products AND securities (risk-based) for my entire career and fully understand the upside & downside of each. Understand, I’m not suggesting this to be an either or (investments vs. whole-life insurance). Each has its place as a specific “asset-class” in a portfolio that can powerfully complement one another during one’s retirement. Whole-life insurance doesn’t react to the economic swings of the markets and can help offer stability & leverage within a portfolio.
Please know, I also recommend, underwrite and place large amounts of term-life insurance to further protect a client’s income, and I do know that it has a very significant place in most properly designed financial plans, as you can secure large amounts of pure term-life (temporary) protection for a much lower cash-flow consideration. It is a wonderful tool for protecting one’s income, during their earning years only. You just need to plan for it not being there to deliver a large block of cash to your heirs when you die.
Expensive or no cost?
In the middle of the 19th century a life insurance product was created by Mutual Life Insurance companies. It was called whole life. It provided the guarantee of cash values, premium and death benefit. It also had a non-guaranteed growth element called dividends and some of these mutual companies have paid a dividend every year since their existence. There are only a handful of mutual life insurance companies remaining that haven’t changed their structure and time-tested investment philosophy, primarily in fixed income. Whole life insurance has many features and benefits that, when properly understood, makes it (in my opinion) one of the most appropriate “long-term” and conservative products to grow your money, with an amazing 150+ year track record of only gains and zero losses (if funded properly). Here is a list of its benefits:
- Has a valuable death benefit that is guaranteed to life
- Permanent Death Benefit that’s guaranteed and cannot be outlived (unlike term-life insurance)
- Tax-Deferred Growth (like an IRA/Pension Plan)
- Tax-Advantaged Dividend Distributions
- Tax Advantaged Loans
- Uncorrelated Asset Class – (*does not move with or react to other markets)
- Liquidity (for anything)
- Guaranteed Cash Value (contractual)
- Annual Dividend Distribution (Guardian has paid a dividend every year since 1868)
- Protected from Creditors (in most cases & varies by state)
- Competitive internal rate of return on death benefit and cash values
- Permitted to pay a premium amount above the base premium by adding a rider and not changing the policies taxation
- Never goes down in value (providing there are no loans or withdrawals)
Whole Life insurance is intended to provide death benefit protection for an individual’s entire life. With payment of the required guaranteed premiums, you will receive a guaranteed death benefit and guaranteed cash values inside the policy. Guarantees are based on the claims-paying ability of the issuing insurance company. Dividends are not guaranteed and are declared annually by the issuing insurance company’s board of directors. Any loans or withdrawals reduce the policy’s death benefits and cash values and affect the policy’s dividend and guarantees. Whole life insurance should be considered for its long-term value. Early cash value accumulation and early payment of dividends depend upon policy type and/or policy design, and cash value accumulation is offset by insurance and company expenses. Consult with your Guardian representative and refer to your whole life insurance illustration for more information about your particular whole life insurance policy.
State creditor protection for life insurance policies varies by state. Contact your state’s insurance department or consult your legal advisor regarding your individual situation.