Whole life insurance was a good product in its time, but that time has passed. Declare it a national historic product, if you like, but move on.
It is no secret that the concept of permanent whole life insurance has fallen on difficult times. In 1965, when I entered the insurance industry, life insurance was an easier sale because it was considered a virtual financial necessity. People may not have wanted to buy life insurance, but they did accept that there was a need for it.
The options for those seeking to protect their family, accumulate a nest egg, or prepare for retirement were limited to life insurance, Social Security, and (promised) pension plans from their employer. Group life insurance benefits were minimal; there were no 401(k) plans, Roth IRAs, or even traditional IRAs. Investment options such as mutual funds were still in their infancy and not viable for the average person. In such an environment, the purchase of permanent, whole life insurance appeared to be a reasonable option.
However, that was 1965, Times have changed. Unfortunately, whole life insurance has not changed nearly as much as the times.
During the past 40 years, a virtual cornucopia of financial options has become available to the consumer. In addition, the fundamental need for permanent life insurance – protection against the economic cost of dying young – has faded rapidly as life expectancy has been extended. Today, people neither want nor do they feel the need for permanent life insurance.
But give the insurance industry credit for persistency. Companies still seek ways to preserve whole life. It reminds me of the elderly person who, when their beloved pet dies, has the animal stuffed and put on the mantel so they can still have it around. Get over it! Whole life was a good product in its time, but that time has passed. Declare it a national historic product if you like, but move on.
What is needed is a higher form of life. In simple terms, the insurance industry needs to develop a permanent life insurance product that the consumer wants to buy, rather than one the consumer feels the need to buy. The idea is to develop a permanent life insurance policy that rewards the buyer more for living than dying. The good news is that such a product is possible.
A higher-form life insurance should serve as more of a resource of available funds that can be drawn upon in the event of financial emergency during life, not just at death. Thanks to modern medical technology, catastrophic illnesses that once meant almost certain death (heart attack, stroke, cancer, etc.) have turned into survivable but expensive events. Traditional life insurance does little to meet these needs. A higher form of life insurance would of course pay out at death, but it could also allow the insured to draw down a portion of the face amount to offset the costs of a living event. (The death benefit would be reduced by the amount drawn down while living.) In essence such an insurance policy would become true “life insurance.” The policy would be a type of “life fund” that would protect the insured from financial emergencies during their entire life.
At retirement, the only value traditional life insurance offers is to withdraw accumulated cash values, and these values are usually insignificant when it comes to retirement needs. A higher form of life insurance could accumulate a specific additional “retirement value.” This retirement value could be three to four times as much as the amount of cash value and be available to the insured in the form of a guaranteed life income.
There are many more living options that could be built into a higher form of life insurance that would make the product attractive to the consumer. However, if the life insurance industry remains wedded to a lower form of life, it will continue to see the sale of permanent life insurance decline, if not expire.
(This article bylined by Bob MacDonald was originally printed in Insurance Marketing, the premier source for marketers of life, health, and financial products.)