This is the 2015 version of the age old question, why term versus whole life? Some of the answers are the same and some are vastly different, I would say even dangerously different for those who are serious about their needs and just looking for the right product to meet it.
I have a client who was approached by a friend, a friend new in the business, working for an outstanding company, being mentored by a long term IUL agent. As a precursor to the rest of this story I want to tell you that any captive agent or any agent that is going to focus on just one product starts this same way. They are guided toward family and friends so they can overcome the trust and restless uneasy feeling that they don’t know if this is right or wrong. They just know that the mentor has made tons of money doing this the same way, starting with family and friends.
I remember starting with a company that was one of the big players in traditional life insurance UL’s in the 1980’s and had my mentor. He had been in the business since before UL’s had come into existence but had taken a liking to them when he found out that the giant projected cash numbers got client’s attention way more than whole life. Even though the cash values weren’t guaranteed in a UL, with interest rates rising, somehow it just made sense. Why look at the negative (guaranteed) when everything around you was screaming positive (non guaranteed). So they bought life insurance UL’s like investments with a great feeling of comfort that they would not only have insurance, but would be rich beyond any reasonable thinking by they time they were ready to retire.
So 30 years later so many hundreds of thousands of these life insurance policies bit the dust, either because the cost finally blew a hole in the budget, or more likely the stagnant low interest rate had driven the polices down to a point where they wouldn’t sustain themselves. And then the “it’s too bad” came in the mail saying “in order to keep your life insurance policy in force your premium this year will need to go from XX to XXX, and may be XXXX in the future. So many bailed and took what cash was left at that point or if they didn’t have any cash, just took the hit and let the policy lapse.
Fast forward to Indexed UL or IUL life insurance, the new version of the old UL, but much safer according to those in love with the idea. The only difference is they have narrowed down what the cash value will be based on, the index, and they have guaranteed that the worst case is zero growth. Oh for the love of our industry, if that were just true! The index in thee life insurance is there, but after costs just doesn’t seem to perform as it was presented (non guaranteed) and the worst case zero (guaranteed?) doesn’t seem to hold either because zero minus charges is minus something.
Anyway, this whole thing started with two friends, one trying to talk the other into spending $1000 a month worth of life insurance to be rich in the future and the other having a bit of an uneasy feeling about it. In reality, minus the greed of the agent, the client could put an end point to when his need for life insurance would occur, a 30 year term need, leaving plenty of money to invest and a guaranteed price and length on his insurance.
Bottom line. A wise guy once said, “you should never use life insurance as an investment and never use an investment as life insurance”. 95% of life insurance needs are term needs and I challenge anyone in the business to prove that wrong. The other 5% can best be handled outside of any type of UL. If you have any questions please call or email me directly. My name is Ed Hinerman. Let’s talk.