Insurance Pro Blog Podcast | Life Insurance and Annuity Insights

If you've missed part 1 and part 2 of this five-part series, it would be worth your time to go back and listen to both of those episodes. It's not a pre-requisite, but it will help give you a little context for what I'm about to say…

This third argument against owning cash value life insurance (whole life and/or universal life) is the most ridiculous one so far.

The third argument goes something like this, “it just takes too long to see a return on my money”.Look, I understand that we all want to achieve as much of a return as we can in as short a time possible. No harm in wanting that.

I'd like to eat ice cream for lunch and dinner everyday. Why not breakfast? Well, I need coffee more than ice cream in the morning.

Just Because You Want It

Doesn't make it so. Despite what many self-help gurus and televangelists would like to have you believe, we don't actually live in a “name it and claim it” sort of world. Just because you want it, doesn't mean you can have it that way.

You know what's really odd? Most common financial planning and/or investment advice encourages patience and steady focus. However, those same people aren't willing to apply that logic to life insurance cash value returns.

They either don't get it, or are deliberately trying to make life insurance look bad. I'll let you be the judge of that, I have my own opinions.

I've invested thousands of dollars in my children…school stuff, sports, camps, braces, surgery, vacations, educational trips etc. Does that mean I should declare all of that a terrible investment because I've yet to get anything back on that?

My oldest son is 15 and he's yet to become totally self-sufficient. And worse still he's not taking care of me yet. What the heck?

So far, all five of my children have been a terrible investment.

Obviously

I'm being deliberately sarcastic here but I hope it at least gets you to see how ridiculous we can all be. And gives you the ability to sniff out the half-truths you'll hear from the financial press.

To be sure, life insurance is not the panacea (I've said that here at least a dozen times) but it is an effective tool in your arsenal, be open to the possibilities.

Specifics Matter

If you want to see actual data that proves everything I've just written, you gotta head over to this post that Brandon wrote late last year. It's well worth 10 minutes of your time.

The claim that life insurance returns are terrible is nonsense and a form of weak thinking mostly intended to confuse and mislead. But it's easier for all the financial bloggers and talking heads to agree with each other, so… It seems that most people's only measure of savings or investment strategy is to look at ... Keep Reading

The claim that life insurance returns are terrible is nonsense and a form of weak thinking mostly intended to confuse and mislead. But it's easier for all the financial bloggers and talking heads to agree with each other, so…

It seems that most people's only measure of savings or investment strategy is to look at the rate-of-return. If the return is higher, it must by default be better. 

And since stocks tend to earn a higher return than everything else, that's where you should put all your money. If only your choices were really this simple. Alas…your choices should involve a bit more thought and discernment.

If you'd like to read more, check out this post we wrote a while back to give yourself a bit more context for this podcast.

Over the next few weeks our podcast will look at five of the most common myths people have regarding life insurance. In particular, we're looking at those myths that attack cash value life insurance and the evil people (us) that sell it. If you want a preview of each topic, you should head over here ... Keep Reading

 

 

Over the next few weeks our podcast will look at five of the most common myths people have regarding life insurance. In particular, we're looking at those myths that attack cash value life insurance and the evil people (us) that sell it.

If you want a preview of each topic, you should head over here to see the “Top Five Arguments…” and the links to a more in-depth explanation of both.

What we hope to do in the podcast is to expound a bit more on each one.

Outrageous commissions paid to agents

As you've probably already guessed…today's episode goes after the “Agents are paid too much commission” argument. This is one of our favorites to discuss.

We've seen a lot of “authorities” speak about about outrageous commissions paid to life insurance agents when they sell you a permanent life insurance contract (whole life or universal life). Things like…”Did you know that your agent made 90% commission on the policy he sold to you?”

That could be true…

But 90% of what? That should be your follow-up question.

The truth is that insurance agents will probably make something between 55% and 100% in first-year commission on a permanent or cash value life insurance sale. But you need to understand, that's on the base policy (whole life) premium or the target (universal life insurance).

And that is paid only in the first year.

In our case, with the design intention of growing cash value as quickly as possible, the base premium and/or target premium are the smallest portion of total premium that a client is paying. So yes, we may get a high percentage commission but that's on the smallest portion of what our clients pay in premium and it's only for the first year.

The additional/excess/paid-up additions premium pays at a much lower percentage. It's hard to nail down precisely but it's about 2.5% on average.

But why does it matter?

That's the question you really need to ask yourself. Why do you care how much your agent makes? I don't know about you but I don't wander into the hardware store and speculate as to what the gross margin is on the box of nails I need.

Frankly, I don't care.

I have two boards that need to be nailed together. The guy that owns the hardware store (Bob) sells nails. This means that Bob has the solution to my problem and I'm happy to pay him for the solution.

Not one time do I ever think to ask…

“Hey Bob, what's your cost on this box of nails? See, I wanna make sure you're not making TOO much money.”

I suspect that if I were to say something like that to Bob (owner of hardware store), he'd laugh hysterically and then kick me out of the store.

My point here is that if what you're buying from someone serves your purpose and it does so to your satisfaction, why do you care how much money the person selling it to you is making? This is not a zero-sum game, and just because you know his/her gross commission doesn't mean that the agent is putting all that money in their pocket.

Remember, they are running a business as well…which means they have to pay staff, taxes, overhead etc. just like every other business.

 

Buy term and invest the difference has long been the mantra of investment salesman(women) and Primerica built an entire company around the idea. The premise behind the concept has always been that one could achieve a greater return with “investments”  vs. traditional whole life insurance and it’s cash surrender value build up. For the investment ... Keep Reading

 

Buy term and invest the difference has long been the mantra of investment salesman(women) and Primerica built an entire company around the idea. The premise behind the concept has always been that one could achieve a greater return with “investments”  vs. traditional whole life insurance and it’s cash surrender value build up.

For the investment industry, this was a way to take premium dollars away from the life insurance industry and redirect it into investment accounts. For Primerica, this was a way to replace current life insurance contracts with term insurance juxtapose on the cost today of achieving a given death benefit.

Other financial talking heads have jumped on the buy term and invest the different bandwagon, mostly because they know it draws a lot of attention from life insurance agents who want to argue the point—and few things draw more attention to you than a fight.

As insurance brokers/agents, one would anticipate that we’d very much dislike the notion of buy term and invest the difference, but one would be wrong to make that assumption.

What is an Investment?

Here’s the definition of investment as it appears at dictionary.com.

Notice the underlying theme behind all three iterations of the definition. The commitment to some “thing” under the assumption that later in the future it will be worth more than it was originally.

Buy term and invest the difference is less about investing the difference in cost between whole life insurance and term insurance and more about taking that difference and buying mutual funds (mostly, maybe stocks in some cases). But mutual funds are not the only investment that exists in the world. Before we go down that road, let’s stop for a moment to talk about something else.

Term Life Insurance is a more Efficient way to Buy Death Benefit

The foundational claim behind A. L. Williams and later Primerica was that term life insurance was a more efficient way to purchase death benefit. And in the short term, they are correct. There’s no arguing that from year one, there is far less outlay that would be needed to achieve a given level of death benefit on any individual vs. whole life insurance (and universal life insurance).

There should never be any confusion about this among our industry. From time to time we will have people ask us how they should go about getting the death benefit coverage they need while not having the premium they are placing into a contract be enough if we design it to maximize cash value. Our answer has always been the same: buy stand alone term insurance.

We’re not all that interested in ruining a perfectly good life insurance contract, designed to optimize cash value, because someone wanted/needed more death benefit for a period of years while they were working or whatever other obligation existed that forced them to need the additional protection.

And making this suggestion does not nullify the fact that whole life insurance and universal life insurance can be phenomenal savings plans. We could even argue…investments (see the definition above, it fits). In fact, I’d argue that it’s the confusion many agents like to make about this, that leaves a lot of consumers in a really bad situation, with a sub-optimal product for both cash value accumulation and death benefit goals.

One Product will not Cure all your Woes

As much as we might want to try and convince ourselves otherwise, the life insurance industry has yet to manufacture a product that fixes all of our problems better than any other product. Instead, most problems require a focus on (and therefore purchase of) more than one product.

So if you’ve discovered that cash value life insurance is a wonderful tool for wealth accumulation, retirement income,

This week's episode is a continuation of the discussion we had last week. If you didn't catch that one, you can go and listen to it now. Last week we discussed the impact that the economy and more specifically, interest rates, have on whole life insurance. This week is all about how the economy has, ... Keep Reading

This week's episode is a continuation of the discussion we had last week. If you didn't catch that one, you can go and listen to it now.

Last week we discussed the impact that the economy and more specifically, interest rates, have on whole life insurance. This week is all about how the economy has, can and will impact universal life insurance.

What happens if interest rates go up (as we suspect is going to happen)?

Listen to the full episode to find out more.

Today's episode dives into a discussion of how economic conditions and more specifically how interest rates have and will effect whole life insurance dividends. What happens if rates go down further? I know it doesn't seem likely but there are other countries around the world that have negative short term rates currently. Or better yet, ... Keep Reading