Whole Life Insurance, an asset class for general public and for your Portfolio.

I recently came across and interesting interview from CNBC.  You can go watch the interview here. The interview had many good points the least of which was the title of this article;   Whole life insur­ance is a safe asset that should be con­sid­ered for your port­fo­lio. You can be sure of a beyond decent return.

For decades whole life insurance was used by the general public.  In fact, before the 1970 is was the go to place for Americans’ savings.   The general public has been conditioned to put their savings into other vehicles in the recent past, but still today this asset class is highly used by banks, corporations and college endowments.

But back to the interview.  Let me summarize 9 reasons CNBC sites as reasons every American should add this asset class to your holding.

1. High Rates of Return.
2. Mor­tal­ity is reces­sion proof.
3. Tax Free Gains.
4. Not correlated to the stock market.
5. Safe bet long term investment.
6. Safe bet long term investment.
7. High interest rates
8. Virtually no volatility
9. Liquidity through out your life.

Is that enough reasons or should I go on?  There are other articles on this blog that give other reasons, but let me talk a little bit about why we offer a very specialize form or whole life insurance from specific companies and not the ever popular and easy to sell IULs or EIULs.  I need to be clear here – ULs are not permanent insurance.  They are term insurance.

A quick history lesson is useful here.  I will allow R. Nelson Nash to give us the lesson.  He is the author of the book Becoming Your Own Banker.

Uni­ver­sal Life was invented in the early 1980s by E. F. Hut­ton, a stock bro­ker­age firm that, in my opin­ion, knew noth­ing about life insur­ance.  Remem­ber the tele­vi­sion com­mer­cial, “When E. F. Hut­ton speaks, every­one lis­tens.”  Have you heard him say any­thing lately? They don’t exist any­more! UL was noth­ing more than “one-year term insur­ance with a side fund of an interest-bearing account.” It was an attempt to “un-bundle” the sav­ings ele­ment and the life insur­ance ele­ment of a whole life pol­icy — some­thing that can’t be done, if one under­stands the con­cept of whole life insurance.

This hap­pened dur­ing a time of high inter­est rates and it “looked good” in the early years of the pol­icy. When I first saw the pol­icy I ran some illus­tra­tions and they kept “falling apart” when the insured attained age 65 to 70. The cost of one-year term became pro­hib­i­tive at the advanced ages and “ate up the cash fund” from that point for­ward. There­fore, I never sold one of them when I was in the busi­ness — and I surely wouldn’t buy one!

Next came Exec­u­tive Life out in Cal­i­for­nia. They made a “big splash” in the busi­ness and ulti­mately went broke. I under­stand that pol­icy own­ers actu­ally lost money with their policies.

Does the name, Michael Milken, mean any­thing to you? He did prison time as a result of his finan­cial shenani­gans. Would you guess where he was sell­ing all of those “junk bonds?” If you replied, “Exec­u­tive Life,” then go to the head of the class! Would you like your finan­cial future in the hands of peo­ple like that?

Lastly, there came Vari­able Life, invented by Equi­table Life Assur­ance Soci­ety. It was noth­ing more than one-year term insur­ance with a side fund of a mutual fund. There are more mutual funds than there are stocks. No mutual fund is any bet­ter than its man­ager. The great pre­pon­der­ance of mutual fund man­agers had never seen a down-turn in the mar­ket until the recent one.

I sug­gest that you read THE TRUTH ABOUT MUTUAL FUNDS. Then read THE BATTLE FOR THE SOUL OF CAPITALISM by John Bogle, the orig­i­na­tor of The Van­gard Fund. These two books are vital to the under­stand­ing of what goes on in that indus­try. Also read PIRATES OF MANHATTAN by Barry Dyke. Upon com­ple­tion of these three books you should be ade­quately informed to make an intel­li­gent deci­sion as to whether you should con­sider Vari­able Life.

I was with Equi­table Life when Vari­able Life came on the scene. I never sold one of those poli­cies — and I would never buy one. I do not rec­om­mend its use for the Infi­nite Bank­ing Concept.

So here are 9 reasons I do not like ULs or EIULS other than they are really term insurance.

1. I have found that UL & EIUL have too many mov­ing parts and they are tied to the fluc­tu­at­ing mar­ket index. The reason for many of the moving parts is to shift risk from the company back to the policy owner.
2. They have not been around long and many ULs written in the 80s are already imploding. Whole Life has been around for over 150 years.
3. The reason for the implosion is the ever increasing cost of insurance. The basis of all ULs is a one year renewable term policy.  When you are young that cost is low, but year after year the cost gets more until it eats all your cash value and the policy lapses.  This can potentially cause a tax burden.  But what about no lapse guarantees?   See reason #1 for understand.
4. Some majoy insur­ance com­pa­nies do not offer UL or EIUL because they are too risky. Banks shift risk away from them­selves, so do what banks do. The insured is tak­ing on the risk with these policies.
5. Like #4, do what banks do. Major US banks use as a base reserves or tier one assets cash value mutual life insur­ance poli­cies,. Why? Because they are safe and secure.
6. Most impor­tantly – UL & EIUL do not offer paid-up addi­tions riders. These riders allow the policy owner to build cash faster, permanent cash, not something that is fleeting with the age of the insured.
7. C.O.I. Cost of insur­ance. With UL the cost starts low but gets more expen­sive as you age which becomes a drag on the cash value over time, and usu­ally causes the pol­icy to lapse at the age you need it most. A lapsed pol­icy can cre­ate a tax bur­den right when you can least afford it.
8. Most ULs and EIULS do not ear dividends from the company profits. That is why these products are so popular with stock insurance companies.
9. Lastly, but maybe a repeat of #1, there are just too many “if’s” in the contract. The contract states something is guar­an­teed “if”. Well there are many “ifs” in the contract. Be careful. As you read the con­tract or even the illus­tra­tion, take note of the many times “if” is used. When there are guar­an­tees, note that they are con­tin­gent on some sub­tle but dan­ger­ous “ifs”. For example If all pre­mi­ums are paid on time. If no loans are taken. If all loans are paid. If all loans are paid on time. The results and sta­bil­ity of the con­tract has its own “ifs”. If mor­tal­ity expe­ri­ence remains con­stant. If mar­ket rates per­form as expected. If  man­age­ment and oper­a­tion cost remain the same. Where is the risk to the insur­ance company?
10. Just look at the illustration and look for the word LAPSED. I am sure you will find in.  Most of time under the guaranteed amounts column.   In case you are wondering lapsed means: no longer valid; expired.  Oops that hurts.

Why is what we offer so much better?  Well three reasons:

1. Education. We per­son­ally train and edu­cate you and direct you to the most edu­ca­tional resources. We stay in touch and sup­port you for a life time either monthly, quar­terly, semi annu­ally or yearly, it is your choice. How do you make the most of your pol­icy as your own bank­ing sys­tem?
2. Experience. We practice what we preach.  We have our own policies and use them is many different ways.  We do not recommend something we do not have experience with.
3. Cash Value. Immediate and permanent cash value.  We can insure almost everything.  Well everything except your own poor choices.  If you are teachable, you will have more cash than you have ever had before..

Isn’t it time you consider adding this incredible asset class to you holdings?

A few questions to consider:

1)  Where can you find an insurance producer that knows how to design a policy for immediate assessable cash value?

2) What is a decent percentage of your first annual premium that should be in cash value immediately?

3) Has your current financial advisor educated you on the value and benefits of this times tested asset class?

4) How can you best learn about whole life insurance and its unique characteristics?