For the long haul
Whole life insurance offers strategic benefits
by Danny Mensh
Over the past several years, we’ve all watched as the markets have fluctuated and people have lost their jobs. But the stock market actually has done quite well over the past 12 to 18 months, and from what I’m told by some friends in the investment business, those who’ve left their money invested also have done well.
However, there’s still quite a bit of money on the sidelines. People remain skeptical but are cautiously optimistic that we’re moving toward stability in the financial world.
In previous columns, I’ve discussed the value of term life to protect lost income and debt in the event of death, and disability insurance to protect ongoing expenses in the event of a disability and inability to continue to earn income. Once these issues and health insurance are addressed — and you’re funding some form of retirement plan — a small to medium amount of whole life insurance can be a wise purchase.
Whole life benefits
Whole life insurance is permanent life insurance that’s designed to provide guaranteed premiums, guaranteed death benefit and cash accumulation. It is the oldest of the life insurance models and typically is used when individuals are more interested in the future value of the cash and potentially increasing the death benefit later in life.
Many people are less concerned with a death benefit value today but will invest in whole life plans over several years to achieve success in the growth of both cash and death benefits. This type of insurance also is the most expensive form of life insurance due to the inherent guarantees in the contract.
So who needs this type of life insurance? It can be attractive to you if:
- You have the cash flow to support the higher premiums needed to grow cash inside the plan
- You’re interested in guaranteed cash accumulation and do not want an investment risk
- A business is required to fund a life insurance policy for a key person who wishes to help grow cash for retirement
I recently considered $250,000 in whole life coverage for a 32-year-old female client as a way to diversify her retirement planning and have her contribute to a forced savings plan. We reviewed plans and proposals from a dozen carriers and discovered that one of the most recognizable companies provided the most cash down the road and death benefit after 10, 20, and 30 years of premiums paid using current interest rates and charges.
For this female, who’s in excellent health, we’d pay a little more than $2,000 annually. After 20 years, there would be more than $70,000 in cash value, and her original $250,000 death benefit will have grown to more than $310,000. When she turns 70, the cash will have grown to $223,000, with slightly less than $450,000 of death benefit. It’s a good return on $90,000 invested.
Whole life insurance also is increasingly used for those with higher incomes who want to dump a certain amount into these policies for a specified period of time. The idea is to protect income and assets with the policy’s guarantees, but with a solid carrier’s dividend payment and additions that create more death benefit over time. This type of policy’s premiums can be paid in full for the entire period to coincide with peak earning years.
If you’re not sure what to do with extra income but wish that you had a tool to help create additional cash down the road, then whole life insurance can be the ideal compliment to your investment portfolio.
About the expert
Danny Mensh entered the insurance industry in 1996 and became president of Mensh Insurance in 2007, taking over a family business that has been in existence since 1968. With more than 10 years of experience, Mensh is certified in long-term care and brings an independent approach to discussions concerning life and disability insurance for individuals and businesses. Planning topics range from protecting income due to disability or premature death to estate planning and preservation measures.
Mensh has appeared on radio and has filmed various educational programs on insurance issues, and has written articles in local and regional magazines on the topic. He received a Bachelor of Arts degree from Duke University in Durham and is active in the Duke Alumni Association in North Carolina. He also is a member of the National Association of Insurance and Financial Advisors, National Association of Health Underwriters, and American Association of Long Term Care Insurance. To learn more, call (336) 631-5503, e-mail email@example.com or visit www.menshinsurance.com.