I followed my father, who had followed his father, into the life insurance business. One of my favorite pictures is of my grandfather, who was an agency manager, speaking to a group of agents in 1950. He was standing by an easel with a large pad of paper (no PowerPoints back then!) pointing to these words:
Die too soon
Live too long
Get sick or hurt
While most things seem to have changed since that day in 1950 when my granddad was training agents, I’m convinced that some things haven’t. No matter how we present, package, design or promote life insurance—the fundamentals remain unchanged. Our job is to help remove the uncertainty by protecting families and businesses, and I believe that today we are better positioned to do this because of the variety of living benefits that can help us truly design solutions that serve our clients with a more holistic approach.
I’m often asked by agents and consumers “What’s the best type of policy to own?” My answer is always, “The one that’s in force when you die.” In this article, I will focus on a permanent participating whole life product as a frame of reference. Before looking at the riders that can help your clients, it may be helpful to take a moment and remember the inherent advantages of a permanent life insurance policy. A recent report by LIMRA1 shows that whole life is now 34 percent of market share and seems to have been “rediscovered”. A reason for this success revolves around the word “guaranteed”: your clients can be assured of guaranteed premiums, guaranteed cash values, guaranteed death benefits and guaranteed nonforfeiture provisions.
In our whipsaw economy, people derive a lot of comfort from hearing that they can have a big part of their financial lives “guaranteed”. However, their initial reaction might be, “What does a permanent life insurance policy have to do with living benefits?” If we stop and think about it, there is no other financial product that can help with all of the lifelong events that happen to individuals, families and businesses.
One of the first “living benefits” of whole life is the guaranteed cash values of the policy—the ability for your clients to have liquidity, use and control of their money in the event of an emergency, opportunity or as a retirement income supplement. Cash values, which accumulate on a tax-deferred basis, can be utilized through policy loans and are available without credit checks or delays, so your clients can access them for their living needs: buying cars, paying for college, taking advantage of business opportunities, etc. In essence, your clients have the comfort of knowing that the money is there for them. And while dividends are not guaranteed nor required by law, if you use participating whole life as the funding solution, then the potential benefit to your clients of receiving dividends is increased.
I could go on for pages about the many potential “living benefits” that are available with a permanent life insurance policy. Examples include nonforfeiture contractual provisions, which can help down the road so insureds don’t have to give up their death benefits; dividend options, which allow flexibility of cash accumulation; and tax benefits (accumulation tax-deferred, income-tax-free death benefits, and distributions can be arranged tax-free).
College planning is an important concern for many families, and using whole life insurance can help solve this very real and financially draining situation. To receive financial assistance, the student must complete the FAFSA (Free Application for Federal Student Aid) form, and while money in stocks, CDs, bank accounts and 529 plans are a part of the formula—permanent life insurance is not—making it another valuable “living benefit” for your clients.
I also consider whole life’s death benefit as a “living benefit” too. It guarantees that money will be available to beneficiaries income-tax-free (if structured appropriately) when needed most. I could elaborate at length about the ways the death benefit is really a “living benefit” too, from freeing beneficiaries of the worry of debt, mortgages and income, to being used as a way to perhaps make retirement election decisions that result in more income.
In addition to the policy’s guarantees, the innovative and flexible riders and benefits available today can help us broaden the scope of the “die too soon/live too long/get sick or hurt” discussions. Let’s look at some of the key living benefit options available for you in plan design.
A recent innovative living benefit is a chronic/terminal illness rider. A demographic reality is that the population is aging—we’re living longer, which is great news. A downside is that it is estimated that nearly 50 percent of the U.S. population suffers from at least one chronic illness and that one in four adults has two or more chronic health conditions.2 Therefore, when chronic/terminal illness riders are added (often at no premium cost) to a life insurance policy, the rider can strengthen long-term financial objectives for your clients. It also helps with the “get sick or hurt” and the “live too long” needs, since the longer we live, the greater our chances become of developing chronic or terminal illnesses.
If you include a waiver of premium rider, the policy can be further enhanced and help with the “get sick or hurt” situation. Should the insured suffer a qualifying disability, then he or she, or his or her family or business (if a business owner), can be assured that these cash values and dividends will continue so the insured can focus on getting better.
Your clients face a daily barrage of financial misinformation, including the advice of self-recognized “experts”, and they often have to deal with financial minefields throughout their lives. Therefore, they truly need your guidance. When you couple the array of living benefits with the core characteristics of a permanent policy, you can put your clients in the driver’s seat to clearly design a customized solution for their many lifelong financial needs.
A recent LIMRA study asked consumers about their thoughts on life insurance. The results showed that while most people recognize the value of it, 75 percent said that they were not likely or were only slightly likely to buy any within the next year. The main reason they gave was that the benefits don’t warrant the expense. What a great opportunity to show your prospects that by adding some of the many “living benefit” riders (while reminding them of the “living benefits” that are a guaranteed part of a permanent policy), the long-term benefits of whole life insurance really do outweigh the short-term expense.
1. LIMRA’s U.S. Retail individual Life Insurance Sales Report, Third Quarter 2015.
2. Centers for Disease Control and Prevention, 2012 update.