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Perspectives on Whole Life

Perspectives on Whole Life

| October 30, 2019

“It’s not what you look at that matters, it’s what you see” – Henry David Thoreau

I’ve heard that if you don’t want to talk to anyone at a social gathering, when you’re asked what you do, tell them you sell life insurance! I’ve also heard that among the cohort of financial professionals, if you want to divide a room of us, just say two words. Whole. Life.

The interesting part is if you ask Dave or Suze, they might say you’ve sinned by purchasing a whole life policy, and then if you talk to other segments of the financial planning industry, a whole life policy is the only way to go. By chance, can they both be right and wrong at the same time?

It seems as though financial professionals have gone to their corners of the ring and doubled down on their position about whole life strategies leaving a huge gulf of space in the middle. Why this is so, and how come there seems to be so much passion on both sides of the issue with little consensus in the middle?

From the consumers’ perspective, it might feel that they need to pick a side between polarized options about the appropriate use of whole life insurance.

Everything or none.

Only or never.

However, could it be that a binary position like this might actually be potentially harmful to our clients and prospects as well as our ability to serve them?

In my job, I work with financial advisors and agents, over a hundred of them so far, and I thought why can’t a financial plan include both risk-based assets and contract-based assets as a part of an overall sensible strategy? Heck, I look at my personal planning which includes risk-based assets for potential growth, a significant chunk of term life for pure insurance coverage, and gasp, a whole life policy to provide a foundation of stability despite volatile assets and life circumstances.

To demonstrate further, I was talking to a financial professional a while back who asked my opinion about whole life, and I guess I didn’t give him the answer he wanted, so he got a little angry. The funny thing about the conversation is that I didn’t even give an opinion at all, but merely stated a few facts about the way the contracts work.

I guess I picked at a scab because boy was he hot, but thankfully that’s not where the conversation ended. After civility was restored, we started talking about what he tries to accomplish with clients and what he believes are attributes of a good overall financial plan. He said things like he wanted to help grow his client’s assets, and he wanted to make sure they didn’t struggle, and so on.

Guess what, some of the attributes of a whole life plan, were in fact what he wanted for his clients. This was a great conversation because once the obstacle of “opinion” was broken down, we were able to have a constructive, fact-based, talk about whole life. And instead of taking a position of all or nothing, the conversation changed to placement, amount, and allocation.

So, what was the secret to the conversation above?

The secret was perspective. So, we took the perspective of a hypothetical plan with whole life instead of looking at a plan starting without. We discussed the question, “If your client has some whole life in their portfolio and someone recommended removing it, how would they replace what it does?”

Term life? That takes care of the death benefit but has no living value.

Risk-based assets? That might help with asset growth over time but no death benefit above the value of the assets.

Maybe term life plus risk-based assets? This is also known as buy term and invest the difference. That takes care of the death benefit, at least for some time, but the risky assets can be volatile, and sequence of returns remains unaddressed.

Okay, how about term life, plus risk-based assets, plus cash. Now we’ve got something to consider, but if you need a cash position to manage risk, wouldn’t it be best to just keep the whole life?

A friend of mine in our industry told me about an agent who would say, “A whole life policy doesn’t have to be the best performing asset in a plan, it just needs to be better than the worst.” I think what he means is that a whole life policy is valuable and important because of the contractual attributes and how they work within an overall plan. Some of the attributes to consider include:

  • Guaranteed death benefit
  • Guaranteed cash value growth1
  • Non-guaranteed cash value growth2
  • Guaranteed premium
  • The cash values will not and cannot walk backward in a volatile economy, provided there are no loans or withdrawals.
  • Tax-free distribution in many situations3, 4
  • Optional waiver of premium so that the policy continues to perform even in the policyholder can’t5
  • Optional LTC benefits can be linked so that a policyholder can use the policy in different ways

To wrap up, it’s perfectly okay to own several types of life insurance including, term life, whole life, and the various forms of universal life. As a matter of fact, some of the best strategies that manage permanent life insurance as an asset class, will own several types of life insurance to diversify within a conservative asset class. So before throwing the baby out with the bathwater with an all or nothing opinion, consider planning with several types of financial tools working together, including an appropriate allocation of permanent life insurance.












1All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

2Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors

3Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

4Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

5Waiver of Premium rider incurs an additional cost.