My recent post about Suze Orman’s lack of life insurance knowledge struck a chord with another life insurance professional, Jack Bobo. While I disagree with the premise of his article “The Tired Tirade Continues” in National Underwriter Magazine, it was refreshing to hear someone other than me with a long history in the business, taking Ms Orman to task for her attempts to dole out oversimplified advise.
Mr Bobo makes his case for whole life insurance by citing a number of instances where the cash value from whole life policies has saved the day. From people who had never been able to save money that suddenly discovered that they had been, by building cash value to Walt Disney using cash value from his life insurance to finish building Disneyland.
There is no doubt in my mind, because I’ve seen it over and over, that if someone buys whole life insurance, there will come a day when they discover that is has cash value and they will use it.
I guess what I wonder rather outloudly is, if a person wasn’t paying those high premiums for whole life insurance, wouldn’t they have money to put into savings? If Walt hadn’t been putting all of his available cash into whole life insurance, is it possible that he would have had even more funds available than what had accumulated in his policies?
Mr Bobo kind of makes the case that if you aren’t buying whole life insurance, you won’t put money aside for a rainy day. That may be true with some people. But if those same people are shown a different way to reach the same objective by an agent who isn’t stuck in a whole life rut, they might just find they have far more cash in their lives than whole life insurance could have ever provided.
Bottom line. If, as Mr Bobo asserts, whole life is a kind of force savings plan, two things come to mind. If a person hasn’t got the ability to budget for a savings plan, what are the chances that their budget for an overpriced whole life policy will work over the long haul? The second thing is, is whole life really the answer for temporary life insurance needs, and if the needs are permanent, shouldn’t they really be addressed with a more cost efficient universal life policy with a no lapse guarantee?
PS. I am not taking Suze Orman’s side. I still think she should go back to insurance kindergarten and start over.
My 20 years of experience give me the knowledge and leverage to find reasonably-priced life insurance for people who have been declined or are paying more than they need to.
Just one e-mail response, please, but what is universal life? I have term life and whole life as one part of a diversified portfolio, but was not aware of universal life policies…. MbE
Universal life is a mid point between term and whole life. It is guaranteed for life, like whole life, but uses internal guarantees to keep a level premium, like term rather than whole life. The end result is a guaranteed permanent policy that is much more affordable than whole life.
what about the dilemna of the policy eating at itself if it is underfunded, which is the case for most of the Universal Policies I have seen. Many people do not increase their premiums, in turn the increasing cost of the term insurance has to be taken from the cash value accumulation. What types of gauruntees are insurance companies giving with new UL policies to ensure this does not happen.
Steven, Your analysis of a improperly structured and sold UL is right on the money. If the policy is based on assumptions rather than guarantees, it will indeed gobble itself up and every penny will have been wasted. In the past 6 years or so has come the advent of the no lapse guarantee rider. The NLG creates a product that the rest of the world has had for some time, a term to age 100. It has guaranteed level premiums to age 100 (shorter periods if you want). At age 100 the policy doesn’t require any further premiums to stay in force until age 120.
Mr. Hinderman,
I know I am late to the party but I just came across your posting about Mr. Bobo’s article. In your explination to Dr. Ekey you stated that Universal life “uses internal guarantees to keep a level premium, like term rather than whole life” Isn’t this a false statement?
As far as I know my whole life policy premiums are guarenteed to be level for the rest of my life. Also, the last I checked when my term runs out on my seperate term policy my premiums skyrocket. Who is wrong my policy or your statement?
You commented, “I know I am late to the party but I just came across your posting about Mr. Bobo’s article. In your explination to Dr. Ekey you stated that Universal life “uses internal guarantees to keep a level premium, like term rather than whole life” Isn’t this a false statement?
As far as I know my whole life policy premiums are guarenteed to be level for the rest of my life. Also, the last I checked when my term runs out on my seperate term policy my premiums skyrocket. Who is wrong my policy or your statement?”
The answer to your question may be neither. Universal life uses an internal guarantee “like” term. Term is what it is in that it only guarantees a rate for so long. The UL on the other hand uses the cashless guarantee to keep the premium level for life at a substantially lower premium than whole life.
You indicated that “as far as you know” your premiums are guaranteed level for the rest of your life. I have many clients who were under the same assumption because that is what their agent had told them. The facts didn’t match the agent’s claims. It’s worth a review by an agent other than the one who sold you the policy, or directly through the company. I hope what you have is guaranteed for life even if you are likely overpaying for it.