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I think I should declare at the outset of this piece that I am a dyed-in-the-wool "whole life freak."
I say that because whole life has served me and my clients well over many years. It has always been there, whether it be a loan for emergencies, college funds or retirement income, and it has never done less than was proposed.
Moreover, because this was my main staple as a product, I have never had to apologize for the under-performance of some of the more exotic products that were available. Since retiring, I have been an expert witness in a number of cases involving such under-performance, and I can tell you that it is an excruciating and expensive exercise for both agents and company.
When S.M.U. Professor of Insurance Chuck Gaines was on the speaking circuit many years ago, he always admonished his audience, "The most important thing about money for future delivery is–will it be there? And the second most important thing is–how much? When people get these reversed, they invariably run into trouble." That was conventional wisdom most of my years in the field.
More recently, Ben Feldman used to say when talking about key-person insurance, "Money is entitled to a wage–but not a profit." His point was that profit is made by people who make things happen within a business. It would appear that for most of the 90s people were selling "profit" rather than need or guarantees.
Ironically, in the cases in which I have been involved as a witness, it is clear that both the public and juries thought that the illustrations they received were guarantees, despite clearly a written statement to the contrary. Plaintiffs lawyers have fed this perception with considerable success.
Lately, things have begun to change. Some of the variable products now have certain stop-loss guarantees or other provisions to reduce the risk. But the most significant thing, I believe, is that guarantees are becoming more prized. The disappointments resulting from poor performance in 401(k)s has started to make the defined benefit pension plan attractive.
Reality has forced people to recognize that Ben was right–the wage for money is far less than the expectations of those looking for a quick profit. There is no better teacher than experience, but sometimes the lessons are hard.
