We all want more money. And when it comes to getting more money, we tend to think that there’s an arduous task ahead of us marked with unrelenting sacrifice and persistence. But when it comes to whole life insurance there’s actually nothing we have to do.
This seems counter-intuitive—if not downright impossible—but truth is getting more money with whole life insurance requires no extra effort, it just a little policy tweaking. And that’s where the real challenge lies.
Sorry to be so blunt (actually not really) but reality can be a cold and biting mistress at times. When it comes to the application of whole life insurance as an asset class there are plenty within the financial media who have an opinion one way or the other on the subject, and sadly none of them have the faintest idea what they are talking about.
I’ve stated before that there are two reasons people don’t do something. They either don’t know or they don’t care. Further, I’ve argued before—and I’ll argue again right now—that it doesn’t much matter what the cause is between these two since the end result is still the same…crappy service/product/insert buying analogy here.
In other words, whether your trusty neighbor, college buddy, sister-in-law’s brother, etc. intended to put the screws to you or was simply too stupid to know otherwise is inconsequential…you still got screwed.
A lot of life insurance policies are poorly implemented. There are plenty of people all around the inter-webs complaining about their bad policy, and at least once a week (many times more) we get an email from someone who bought a policy and after a few weeks (or sometimes a year, especially right after they get that first policy statement and see a big goose egg on the cash value column) decided they should now do a little research about this whole life insurance stuff. Take a guess as to how many of those people didn’t get screwed (don’t worry I’ll reveal the answer in just a little bit).
Ignore the somewhat sensational headline there; the point is a good one. As agents/brokers, we have an incredible amount of discretion over how we choose to design and implement a life insurance policy, at least when it comes to cash value products (i.e. universal life and whole life insurance). And it’s very true that whole life insurance can be manipulated or tweaked (if you will) in a way that significantly increases the policies performance.
It’s important to understand that this aspect is entirely up to the agent/broker. A good one should—at least in theory—be interested in designing the best possible policy for you, the consumer. And that bad ones…well, see above.
To prove my point, I took whole life policies from nine of the top life insurance companies that issue participating whole life insurance. I designed them the traditional way by asking the company to tell me how much death benefit I could buy with a specific annual premium, in this case $35,000 per year. I then took one policy from the original nine (the one that worked out the best) and “tweaked” that policy to perform better for the policyholder. What happened?
I compared cash values in years: 5, 10, 15, 20, 25, and 30. Also looked at death benefit in these years and we’ll get back to that point a little later on. The average increase in cash value in all years comparing the “tweaked” policy to the original group of nine was 32%. That’s right, a simple shuffling of the policy yields 32% more money among those years. I didn’t place any more money into the contract, I simply designed it differently. And also note that this policy came from a carrier included in the original nine. It’s not some other company that I grabbed outside of the original nine.
Oh and by the way, when it comes to first year cash value (i.e. the amount of cash value in the policy after the first policy year) the average among the regular policies was…well it’s identical to the number of people who email us and weren’t screwed by their agent…zero.
The amount in the tweaked policy was a little over $23,000. So you can choose between a goose egg after the first year when following most agents/bokers, or listen to us and have much more money in your pocket.
So what’s happening? Are we giving up death benefit? Nope. In that same comparison, I have 31% more death benefit averaged out among all those years as well (I’m sure the variance comes from some rounding).
So what am I doing? What seems to magically make whole life insurance work better? I’m simply designing the policies in a way that is more beneficial to the policy-owner. I’d say I’m designing it correctly, but then we’d be labeling things and…well actually yeah, I’m designing it correctly.
Remember, we’re not making any changes to the amount of premium (incoming money). The policy-holder doesn’t need to part with anymore money. He or she simply needs a more efficiently designed policy. Something we’ve become the authority on.
If you want to know more, or you want to compare your policy to what could be available to you, contact us here and we’d be happy to discuss with you.
Brandon launched the Insurance Pro Blog in July of 2011 as a project to de-mystify the life insurance industry. Brandon was born in Northern New England, and he currently calls VT home. He attended Syracuse University and graduated with a triple major in Economics, Public Administration, and Political Science.
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