I’ve started cringing whenever I see the word “Millennials” in the title of a life insurance article. With rare exception, my generation is painted with a broad brush—perpetually cash-strapped due to high costs of living, crippling student loan debt and a weakness for avocado toast. If you can pry us away from binge-watching a new Netflix series, we avoid human interaction and will only research life insurance on our mobile phones. It will be term life insurance we’re shopping for and, since we’re impatient and thrive on instant gratification, it must be issued instantly upon application.
But there’s a product with features my Millennial friends are quite interested in that you may never expected—whole life insurance. Yes, seriously. Whole life.
The economic future we’re trying to plan for is quite daunting: A future with rising government debt, challenges to the solvency of Social Security and Medicare and only a few available paths for remediation—slash government spending (unlikely), significantly reduce our benefits (more likely), or raise taxes (very likely…and I don’t need to tell you the impact that could have on the net value of our tax-deferred retirement savings).
Gone are the days of employer-provided pensions and retiree healthcare benefits. Those responsibilities will fall on our shoulders alone. Add to that burden contending with inflation, escalating health and long term care costs, increased longevity, etc., and it’s clear we’ll need to find ways to both save more and make our financial resources last longer.
If Gen X should be greatly concerned about these challenges, Millennials should be terrified.
How should we solve those challenges?
In a world where retirement calculators focus on estimating needed account balances rather than generating predictable, tax-efficient income streams, we’re taught that our only hope is to chase a high average rate of return by assuming more market risk (“while we’re young”), ride the waves of volatility along the way and keep our fingers crossed by the time we reach retirement that everything will have panned out.
But therein lies the disconnect. My generation isn’t necessarily enamored with the stock market, nor do we all have a strong stomach for volatility. Remember, the Millennial generation is generally considered to have started around 1980, which means the first wave of us is quickly approaching age 40. We experienced the great recession too. Many of us struggled to find employment out of college or felt the sting of a layoff—and when you’re just getting started as an adult with little emergency savings and a plummeting 401(k) balance, it fundamentally shifts your generation’s perspective on risk tolerance.
We also keenly watched as our baby boomer work colleagues wrestled with whether they could safely and comfortably retire in a volatile market and witnessed their disappointment as many put those plans on hold until their portfolios recovered—or worse, resigned to live in a retirement that wasn’t nearly what they had envisioned. Is that our future too?
When so many financial products we’re offered require embracing risk and uncertainty, whole life’s foundation of protection and guarantees stands out. We know we can’t avoid risk in our planning strategies, but we’re looking for ways to balance out those risks—not take on more.
The simplicity of a guaranteed premium purchasing a guaranteed death benefit having guaranteed cash value build up we can access and the potential to earn dividends has a greater appeal than you may realize. There’s also incredible peace of mind that comes from owning a product with consistent performance, unphased by market volatility. As time passes and the policy has built sufficient value, whole life gives us the security of an asset we can confidently tap into when other assets might have to be liquidated at a loss or when the markets are down. Additionally, since we’re already familiar with the principle of diversifying between asset classes in our portfolio to manage risk, introducing the concept of using life insurance for tax diversification will click relatively easily.
Why not IUL?
“Why not IUL?” you might ask. While indexed universal life may have the “sizzle” of enhanced cash accumulation potential through market-linked interest crediting, its downside protection doesn’t eliminate a sequence of returns risk—it simply has the potential to dampen its impact. (And even that protection has been seriously eroded in some recent IUL designs, which have fallen into the same trap of chasing rates of return by purchasing more risk with higher expenses and a greater reliance on non-guaranteed crediting enhancements.) While a responsibly designed and illustrated IUL can serve many useful roles in a financial plan, being a stable asset is generally not one of them.
Granted, I am not saying that every Millennial you’ll meet will be immediately enamored with whole life or financially ready to make the needed premium commitments. But I am saying there is likely a significant segment of Millennials with rising incomes that are looking for balanced, pragmatic planning solutions. In addition to meeting our protection needs, our rising affluence also means we’re quickly finding ourselves phased out of Roth IRA eligibility. We’re skeptical of any solution that seems too good to be true, and the century-long track record of whole life gives us something we can research and feel confident in.
I’m also watching as successful millennial producers are standing out from their peers by embracing the strength and consistency of whole life’s story—a story being embraced by their millennial friends. Sometimes over weekend brunch meetings, sipping espresso and eating avocado toast.
The opinions expressed herein are the author’s own.
Accessing policy values by loans will reduce the death benefit. Loans taken from policies that are not classified as modified endowment contracts are generally not subject to tax, but may be taxable if the policy lapses, is surrendered or is otherwise terminated. If the policy is classified as a modified endowment contract, policy loans will be subject to taxation, and an additional 10% tax penalty may apply to loans taken prior to age 59 ½.