When someone new to life insurance considers their options for coverage, including term insurance, whole life, index universal life, guaranteed no-lapse universal life, etc. it is an exercise for the imagination – because all the values shown on the hypothetical illustration will only be realized in the future. It is also an act of faith that the insurance company will honor the commitments made in the illustration.
But that is no longer true for me – I purchased my first whole life insurance policy more than forty years ago, so I have personal history with the product based on actual experience. What I’ve discovered is that whole life has outperformed the projections when I bought it. Today, it stands alone in the guaranteed cash value space of banks and bonds, in that it’s returns on premiums paid – in the long run – exceed all the other choices I could have made along the way. Add to that the tax benefits of not having to pay taxes each year on the growth of cash values, a tax-free death benefit, tax-free access to cash values through surrenders and policy loans, and potential tax-free access for chronic illness and you’ll perhaps appreciate why whole life stands as the foundation for all my other investments and assets.
So, from the vantage point of looking back across more than four decades of ownership, here are ten reasons that I have come to love whole life insurance:
- Helps To Protect My Family
- As an “Amiable” personality type (or S for “steadiness” in DiSC) it’s vitally important to me that my family be taken care of no matter what.
- Whole life assures that the policy will never lapse under any circumstance. The death benefit is always there, the cash value is guaranteed, and non-guaranteed dividends just make it better. All I have to do is pay the premium on time
- Premium Goes Down
- Unlike term insurance, where the premium goes up every year, the out-of-pocket whole life premium goes down every year with the “Reduce Premium” dividend option
- In the case of my policies the time has come where my annual dividend exceeds my annual premiums, and I could instruct the insurance companies to pay the premium and send me a check for the excess.
- Cash Value
- Call me old fashioned, but I like having cash. No-lapse UL has its place – but I still like cash value!
- My whole life policies have accumulated ten times as much cash in the past forty years as my checking and savings accounts combined. Why? Because I think of my life insurance premium as a bill – and I always pay my bills. But in reality it’s a bill I pay myself.
- Increasing Death Benefit
- The increasing death benefit under Option B in a universal life policy comes at the expense of policy accumulation.
- That’s not true of a whole life policy. Choosing the “Paid-up Additions” dividend option increases BOTH cash accumulation and tax-free death benefit.
- At younger ages the multiple of dividend to new death benefit may be up to six times the amount of the dividend! This is particularly important if I become uninsurable (which I did last year when I developed a melanoma).
- I Can Stop Paying Premiums
- I have two large whole life policies. Both of them have more than adequate paid-up additions and current dividend to pay the required policy premium for the remaining life of the policy (at current dividend scales), using the Premium Offset concept.
- It’s nice to know that if I wanted to stop paying premiums I could.
- Yes, I know, dividends are not guaranteed. But the worst that can happen is that I start paying at the original age premium of the policies. UL cost-of-insurance rates go up with age – not whole life!
- I Don’t Have To Stop Paying Premiums
- I could let the premium disappear -- but I do not. Why? Because the internal rate of return on each premium paid after the offset year is currently earning more than 5.0% tax deferred. There is no other fixed product I’m aware of with that year-over-year increase in cash value – and the growth of the whole life cash value is tax-free or tax-deferred.
- The death benefit is income tax-free.
- And even at the ripe old age of 67 I still purchase nearly three dollars of death benefit for every dividend dollar that isn’t used to reduce my out-of-pocket premium.
- I Can Take Cash Out Of The Paid-Up Additions
- If I need money for something important, I can cash out paid-up additions and still have the base policy at the ORIGINAL purchase price.
- In fact, I could cash out all my paid-up additions and still not have to pay an out-of-pocket premium because the dividend on the base policy alone is adequate to pay the policy premium.
- The optional PUA (Paid-Up Additions Rider)
- I can increase net cash value and death benefit by using the PUA Rider—and I do. At my age PUA allows me to buy $3.00 of death benefit for every $1.00 I put in. The ratio will decrease with age. And all it ever costs me is a 7.5% one-time premium expense charge.
- More important, the current IRR on these extra payments is approximately 5% if left in the rider for more than five years. Try to match that at any bank!
- I Can Take Tax Free Loans
- My insurance companies allow me to take a loan against the cash value of the policy and paid-up additions on a tax-free basis.
- Here’s the math: $1.00 of paid-up addition cash value provides $3.00 of death benefit, reduced by $1.00 of loan. I’m still ahead $2.00!
- With Overloan Protection Rider I don’t need to worry about phantom income.
- I Can Spend And Invest My Money Without Worry
- By owning substantial cash value life insurance I have felt free to invest my remaining money in the stock market knowing that my family has insurance protection in place even if the market is down when I die.
- At retirement I’ll take maximum income from my pension knowing that my wife is taken care of by life insurance. Talk about financial independence!
THAT’S WHY I LOVE WHOLE LIFE!
*Neither insurance company employees or agents are authorized to give legal or tax advice. Clients should consult their own personal attorney, legal or tax counsel for advice on specific legal and tax matters.
*Individuals involved in the estate planning process should work with an estate planning team, including their own personal tax or legal counsel. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties.
© Borrowman, Jerry. “10 Reasons I Love Whole Life.” 2020. All Rights Reserved.