Perhaps I should start a section on the Insurance Pro Blog called “Dumb Agent Tricks,” and it could be a new home for information on 7702 Private Plans and Investment Grade Life Insurance.
I realize the life insurance business is a tough one. What with all the talking about death and dying I realize just how popular an agent/broker can be at a family get together, cocktail party, etc. So, in a desperate move to spice things up, the industry has been concocting snazzy sounding marketing names for the sale of life insurance for a long time. And maybe…just maybe…the means are justifiable insofar as they accomplish an end that places a client in a better place by making the pill easier to swallow (clients are people, too–dumb just like the rest of us from time to time). But I'd sooner suggest that the financial services/insurance industry needs a good dousing of bleach in its gene pool before it goes out embracing this sort of thing.
Just another way to Divert Focus
Using the phrase investment grade life insurance is a sign of weakness. Hate me all you want for that if your an agent, but deep down you know you what you're doing. Just like the suggestion that there is a special plan created by U.S. tax code in an attempt to avoid having a serious discussion about the fact that you are using cash value life insurance as a means to accumulate wealth, referring to the product as investment grade is just as disingenuous.
However, there may be some Semblance of Honesty here
Despite the fact that I don't like this phrase, there are–admittedly–cash value life insurance products that are more suitable for the purpose of accumulating wealth than others. For this reason, it seems reasonable to suggest that maybe this phrase–investment grade life insurance–isn't completely wrong.
For the purpose of driving a wedge between products that are death benefit focused and products that are cash value accumulation focused, I'd be marginally on board with this phraseology.
Unfortunately this is more a case of not what you but how you say it.
What I mean is those that use the term investment grade life insurance do so to bring greater legitimacy to the idea of owning cash value life insurance. In other words, they are stuck on the us vs. them debate in an attempt to pull you away from other investment choices.
I'm not saying you shouldn't make the substitution.
What I am saying is that the discussion over why you should use cash value life insurance as an asset in your portfolio should be a discussion focused on how the product can be properly structured to achieve this goal, and not littered with useless marketing buzzwords that help no one.
In other words, telling you that there is a form of life insurance that is “investment grade” to get you hooked, is a sign of dishonesty that should immediately signal to you a warning and that you should proceed with caution.
Marketing Gimmick
At the end of the day, this is just one more marketing gimmick.
If it got you to at least stop and start to take note of the fact that you can use cash value life insurance as a comprehensive foundation to your financial plan, then good for it. If, on the other hand, you met an agent who just wanted to sell some life insurance and told you to buy it because it was “investment grade” than shame on him or her.
To be clear, there are certainly big advantages behind owning cash value life insurance as a means to accumulate wealth and provide for retirement income.
If, however, we want to start labeling products as investment grade life insurance we're going to see far fewer products making the cut in my opinion.
I read your article and I got little confused.
1st thing is that what do you want to say whether we should buy life insurance policy or not And 2nd thing is that is insurance is investment or not?
In my opinion we should buy insurance policy but if we are getting some benefits from it then it is good.
Just clear me out.
Hello,
What I am saying is that it’s fine to purchase life insurance, and it’s fine to do it as a wealth accumulation/savings or retirement plan. But agents and advisors needs not present it as some super special form of insurance known as “investment grade.”
Ok, Got your point. Thanks for responding me.
I am as ignorant as they come when it comes to all this stuff. Traditional 401K is taxed every time one withdraws from their account and we must start that process by 70.5, so IGLI is touted as a means to have an income stream without the tax impact, or have I got that all wrong ?
Hi Dan,
That’s pretty much it.
So, what do you feel is the best investment vehicle for our money to be safe?
Hi Jim,
I wouldn’t suggest that there is a universal answer to that question. While life insurance could be a safe place to store money, the point of this article was to highlight a sales tactic that attempted to paint some forms of life insurance in a different light–a light that I found sensational.
The construct looks something like this:
Agent: You should buy life insurance and use it as a retirement plan.
Client: But I’ve read in all sorts of magazine and newspapers that life insurance is a bad place to try and save money.
Agent: Oh I’m not talking about the life insurance those articles are talking about. I’m talking investment grade life insurance. It’s different and more special.
Brandon,
Thanks for this article because I feel there are to many gimmicks out there and no definite answer.
With that said is there a better option than a universal life with a focus on saving and building wealth that can be overfunded without turning it into endowment contract (annuity) thus taking away the tax benefits with a $50,000 death benefit that can be increased over time?
Thank you!
Bret
Hi Bret,
I think “better” depends on a lot of circumstances so it’s difficult to answer your exact question. Universal life insurance is great, and it can work wonderfully as a tool to save money and accumulate wealth. As you’ve noted, it works best when implemented with a plan to overfund preferably right up to the MEC/GPT limit for at least several years.
IGIC programs are NOTHING like a regular whole life or IUL policy and so the way you wrote your whole article is completely incorrect and requires revisions from an expert…like us.
Hi Nick, read the rest of the blog, we are the oldest internet resource on the proper application of cash value life insurance for the purpose of accumulating cash value. The point here is merely a caution against a sales tactic that attempts to persuade people into buying a product because the agent put a fancy label on it that makes it sound different from what some financial talking head said about whole life or universal life insurance.
Hello,
Respectfully, this sounds like a semantics issue that you have. While I don’t use this term as an agent, it summarizes the function of specific whole life policies.
That’s not something every potential client has the patience to get educated on. It’s hard enough explaining the difference between 100k of term life and 100k of whole life, and boy do I feel so sad for those 55 yos who think they’re getting a sweet deal with the former..
Frankly, I don’t think the term is sensationalism as long as the investment can logically provide an ROI for the policy owner. Cash in cash out, be honest. Agents that sell term life to fixed income and low income people are the worst. If they don’t have assets, they don’t need a lot of term. Which is the equivalent of renting life insurance.
As any licensed agent knows, they won’t be able to sustain the premium and it’s predatory. Stop what you’re doing and work for a better company! Have some ethics!
So yes, if I’m selling 100k of whole life to a 35 yo at a fixed 4% roi, and they don’t want to listen to a bunch of “blah blah term blah blah whole blah blah premium” then I would totally say “Blah. Investment grade insurance”
It’s a more expedient way to communicate to a layperson what that policy is supposed to do.