When I grow up, I want to be the General Manager of a Major League Baseball team. The rumors of free agent signings and blockbuster trades thrill me, and I find it fascinating to see GMs address their roster constructions. Everyone wants their favorite team to draft a superstar, but it’s the less spectacular moves that often solidify the season. In my opinion, there is no greater acquisition than that of a cleanup hitter, the player who year-in and year-out delivers consistently, allowing the ball club to operate at full efficiency. Until the White Sox take my job applications seriously, I’m happily helping people construct their financial rosters, and I’m here today to make the case for another great acquisition: Whole life insurance.
Whole life insurance should be the cleanup hitter of your clients’ financial portfolio.
You may have clients at or nearing retirement age who have established a sum of money not likely to be needed for income. Their main objectives are preservation without exposure to risk, and to leave this money to the kids or grandkids while maintaining access and control for the “what ifs.” Clients fitting this profile will commonly have the asset somewhere they consider safe, like a savings, money market, or checking account. Pro-tip: If you identify a Certificate of Deposit (CD) or annuity, look for the “Payable On Death” or “Transferable On Death” designation indicating they don’t plan to use it for income in retirement.
A traditional single premium whole life (SPWL) policy is the perfect solution for your clients fitting this profile. Starting the day the policy is placed, the premium provides a greater tax-free death benefit for their beneficiaries than the traditional accounts mentioned. Other financial products may provide the same benefit down the road, but your client will have peace of mind knowing that their family would receive a greater tax-free benefit if something were to happen today, tomorrow, or several years from now.
As a SPWL policy is fully funded, the cash value builds quickly. Backed by strong guarantees, it is common to see the guaranteed cash values exceeding the initial premium as early as the third policy year. Additionally, the policyowner maintains control and access to the asset, and can utilize the policy loan provision to gain access to the cash value or even elect to have the non-guaranteed dividends paid annually as cash. Finally, with the addition of commonly available riders, the client can access a portion of their death benefit to cover expenses if they were to become critically, chronically, or terminally ill.
Perhaps your client checks all the objective boxes detailed but wants or needs more discretion in accessing the cash value. Pivot to a similar solution by funding a small life-pay policy with a large Single Premium Paid-Up Additions (SPUA) rider. In year two and forward, the premium can be paid out of pocket (un-needed distributions from a client’s qualified plan perhaps), or from dividends and a partial surrender of the SPUA rider. This policy construct will not only allow the client the ability to utilize the policy loan provision against the entire cash value of the policy, but also allow them the freedom to take a partial withdrawal of the SPUA rider’s cash value. A single premium solution with renewal commissions! Talk about a home run.
When discussing single premium solutions, it is imperative to have a full understanding of your clients’ intent. Many single premium solutions are classified by the IRS as a Modified Endowment Contract (MEC), so gains are subject to taxation and potential penalties for early distributions. If you have a client seeking tax-free access to funds, consider a limited-pay non-MEC solution. In as few as two years, the client can fully fund their policy on a non-MEC basis, as premiums can be designed to be paid from policy values after the funding period. Including dividends, it is conceivable for your client’s cash values to exceed total premiums as early as year four!
These solutions all speak to the strength and predictability offered by whole life insurance. It is a product you can place in your clients’ portfolios with confidence knowing that the first day is the worst day, and your client can enjoy a guaranteed performance each and every year. Plus, in an environment where we’re seeing dividends increase for the first time in a long time, there is the potential for the policy to perform even better than planned.
As a budding General Manager, I guarantee that whole life will be your clients’ cleanup hitter—the product that allows the rest of their financial roster to operate at full efficiency. Wishing you all a safe and happy holiday season (and maybe a great free agent signing or trade)!
