Does Permanent Insurance Make Sense?

Equity/Forced Savings

Most people I run into have a strong desire to own their own home. It's part of the 'American Dream'. Permanent insurance, (i.e. whole life insurance) is analogous to owning a home. Term life insurance is analogous to renting. For every premium payment that is made, a portion is deposited into an account…what is commonly referred to as Cash Value. This is similar to how equity is amassed in a home. And, similar to how a mortgage is ultimately paid, whole life insurance is designed to be 'paid up' at some point in the future. A 'paid-up' whole life insurance policy typically will have significant amounts of cash value that is available to the policy holder for whatever he or she wants. I find that most clients don't have the discipline to save enough every month for future goals. Owning permanent insurance solves this challenge.

Flexibility/Options

Permanent insurance provides inherent options to the policy owner. Life rarely goes according to plan. What if the kids come back from college and live at home….for a while? What happens if retirement savings isn't enough to provide financial independence as originally planned? What if a long term care event and the associated expenses completely exhaust the legacy intended for heirs? It happens every day in America. Whole life insurance protects the family when the original plan assumed protection was no longer needed….and that assumption was wrong. (By the way, typically how accurate are 20+ year assumptions?). A permanent life insurance policy can replace the wealth lost to medical expenses and provide the lasting legacy many clients work a lifetime to create. However, if life DOES go according to plan, whole life insurance can be 'cashed in'. Often, after 20 years, most reputable companies, like Guardian, will return more cash value than premiums paid.

Control

With permanent insurance, the policy owner maintains complete control of not only the policy, but many tangential things in life. Many whole life contracts have a provision that if you miss a premium, the policy will loan the premium to itself so that coverage stays in-force. Also, most of the good companies offer a Waiver of Premium provision where premiums are no longer due if the premium payor becomes disabled. Because of the cash value accumulation, whole life insurance keeps the owner in control by providing an additional asset to access in the event of an emergency expense. All of these features help keep the policy owner of a permanent insurance contract in control.




Read Bill Olmsted's Other Articles


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