Insurance Center

Now that investors have experienced two stock market crashes during the last ten years, insurers are questioning whether or not investors are ready to pay greater attention to whole life insurance as an asset to be included in their portfolios.

The CEO and president of Ethical Edge Insurance Solutions, Richard M. Weber, says that according to his recent studies, the answer is a definite yes.
Speaking at a recent media forum that was sponsored by the Guardian Life Insurance Company of America, Weber said that whole life insurance is perfect for people with the money to afford it and who are in need of coverage for their entire life. He then added that when you make whole life insurance a part of the fixed-income portion of a portfolio, it not only increases overall returns, but also tunes down volatility. He added however, that this needs to involve a long-term strategy.

Guardian's executive vice president, Deanna Mulligan, added that the guarantees that are a part of the whole life policy make this possible. Assuming that premiums are paid on time and no loans or other withdrawals are made on the policy’s cash value, the issuing company guarantees that the cash value of the whole life policy will continue to go up and not drop. There are three factors that work together to determine the policy’s cash value and they are the guaranteed mortality rate, the guaranteed interest rate and the guaranteed expense factors. Policyholders are allowed to draw out the cash value on a tax-favored basis, meaning that they are not taxed on the money as it is taken out of the policy, but doing so impairs the use of whole life as part of an investment portfolio, the use suggested by Weber.
According to Weber the benefits that a whole life policy adds to an investment portfolio are not only the guarantees, but also the fact that it is not correlated to investment markets and in this way provides for diversification. Examples are that the investor can include high-grade bonds and then reinvest the dividends. But Weber found in his study that using the dividends to pay down the premiums on a whole life policy is more likely to increase total returns on the fixed-income part of the portfolio with fewer risk.

Speaking to the oft quoted issue regarding the benefits of buying term and investing the difference, Weber pointed out that after the first 25 years, the cheapness of term passes and premiums rise sharply forcing most policy holders to drop their coverage, whereas with whole life you have a fixed level premium and the possibility of using policy dividends to pay down future promise. He also noted that very few individuals are able to invest the difference. He says that to do so not only requires diligence and self-discipline but a knowledge of the markets, something few people have. According to him in order to have the money saved up to pay the higher premiums demanded of term insurance in later years, a person would have to earn close to 10% annually on the portion that they invest.