Whole life insurance may no longer hold the prominent place in financial planning that it enjoyed during its heyday, but this oldest of insurance products got maximum exposure during a media roundtable hosted by four mutual insurance companies here on October 4th. Representatives of the four carriers — New York Life, MassMutual Financial Group, Northwestern Mutual Life and Guardian Life — used the occasion to dispel misconceptions about the product and tout its valuable role in insurance planning.
"If a client needs insurance for their whole life, and we can structure an arrangement by which it fits into their budget and their planning, then whole life is a very appropriate product," said Anthony Domino, president of Associated Benefit Consultants, White Plains, N.Y., a Guardian Life agent and immediate past president of the Society of Financial Service Professionals, Newtown Square, Pa. "If you live to normal life expectancy, the product will actually be less costly than pure term insurance over same time frame."
Meridee Maynard, senior vice president-life product for Northwestern Mutual, Milwaukee, Wis., said that whole life insurance should form the foundation of any financial plan, and not only because the product's permanence. An often overlooked advantage is the product's flexibility and "living benefits:" The cash value accumulating inside the contract can act as a "a second emergency fund" to help cover retirement, medical expenses, long-term care, a down payment on a house or other needs.
Richard Nolan, a general agent at Lee-Nolan Associates, a MassMutual Agency based in Little Falls, N.J., agreed, observing that whole life's settlement options extends to the product's ability to function as a fixed annuity, providing policy beneficiaries with a lifetime income stream. And while withdrawals against the cash value must be rapid with interest (assuming the insured opts to maintain the pre-withdrawal death benefit), the added cost ultimately accrues to the policyholder's benefit.
"In effect, you're paying interest back to yourself," said Nolan. "As the owner of a whole life contract, you can be your own banker. Also, when you borrow money from equity, the contract continues to grow in value. You'll still receive a dividend next year, just as if you had never borrowed."
The dividends, the panelists said, is a key product differentiator, not only in comparison to term insurance, but also other types of permanent insurance, including universal and variable life. While dividends — a return of premium — can be used to purchase additional insurance (paid-up additions) or be received as income, a popular option is to apply them to the annual premium.
Beyond a certain point, the dividends can exceed the premiums, obviating the need for policyholders to continuing payments. As the policy effectively pays for itself, Nolan said, policyholders may feel freer to spend down other retirement retirements assets, such as a 401(k) or IRA, which they might otherwise want to leave as a legacy to children or grandchildren.
