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A Fresh Look at Today’s Whole Life Insurance

The possibilities might surprise you

As children, most of us were read stories designed to teach us about life. Among the most popular of those stories was the one about the race between the tortoise and the hare. As the story goes, the slow and predictable tortoise had agreed to a race against the fast yet unpredictable hare – a race he was not expected to win. Come race day, however, the predictable tortoise – in unpredictable fashion - lumbered across the finish line first, leaving the hare far behind in the dust. The life lessons to be learned: “never judge a book by its cover” and “slow and steady wins the race.”

Now let’s consider another story, this one about a race between people trying to build a secure financial future and some fairly intimidating opponents: time, discipline, and consistency. Can we look for a lesson here from the tortoise and the hare? We can. If we liken today’s whole life insurance policies to the tortoise, with steady, if predictable qualities, we might be surprised to discover just how often that age old story repeats itself. We might also discover how many of us are still ‘judging the book by its cover’ when it comes to choosing life insurance to pursue our financial goals.

Today’s whole life insurance contracts provide much more than just a death benefit and predictable cash value accumulation. Indeed, they have become fairly versatile financial tools designed to meet a number of needs and objectives. Let’s consider just a few:

Protection of assets

Of course, the primary feature of whole life insurance is its income tax-free death benefit. In the event of an early or unexpected death, life insurance proceeds can be used to self-complete a retirement savings program, pay for a child’s college education, buy out a deceased partner’s share of a business, pay off a mortgage, provide ongoing income to a spouse or family member, and generally ensure the financial stability of loved ones – especially if the “race” to financial security is cut short by premature death. Minus the relief that life insurance brings, thousands of homes, businesses, and retirements would be lost each and every year.

Asset Accumulation and Retirement Income Options

Secondary to the death benefit, but for many people equally as important, is the accumulation of cash values permanent life insurance provides. Slow, steady, and predictable at first – tortoise-like one might even say - over the course of ten, twenty or thirty years, life insurance cash values, especially given their tax-deferred accumulation, can grow substantially. What’s more, most whole life policies offer guaranteed cash values which can be borrowed or withdrawn from the policy at retirement to supplement other sources of income. Of course, they can also be borrowed to help children pay for college, to meet unexpected emergencies, or to take advantage of opportunities.

Business continuity

According to numerous sources, only 30% of family-owned businesses survive to the second generation. Why is this? Because while many business owners have taken the time to spell out how their business will be transferred, they have neglected to plan for how the transfer will be funded. When a business owner dies, the other owners generally get the first option to buy his or her shares. And even though business interests are often willed to surviving family members, many buy-sell agreements include the stipulation that surviving family members, if not previously involved in the day-to-day business operations, must sell their interest to surviving owners. The cash received for this interest generally helps the family of the deceased meet its financial obligations while leaving the business in the hands of people best qualified to run it.

There are basically three methods for funding a buy-sell agreement: self-funding, borrowing, and life insurance. In a self-funded buy-sell agreement, the surviving owners can either pay for the business interest outright or through an installment plan. In reality, however, many surviving owners don’t have the ready cash. Borrowing can be equally risky, especially if interest rates are high or, if upon learning that one of the principals has died, lenders become hesitant to loan. Life insurance, on the other hand, can be an efficient (and possibly tax-deductible) method of providing the money when it is needed.

Estate preservation

Today’s estate taxes can consume a considerable percentage of a deceased person’s total assets. And while estate taxes don’t kick in until the value of an estate reaches $3.5 million (at 2009 rates), when you factor in the value of a large home or business, a significant number of estates do exceed this amount . An alternative to liquidating a business or selling off estate assets in order to pay those taxes is often the purchase of life insurance in the amount of the estimated tax liability calculated by your tax professional. There are a number of strategies which can be used to keep the proceeds from the policy out of the deceased’s estate, while simultaneously reducing the size of the estate for tax purposes. (A qualified estate planning attorney can review these strategies with you.)

If you’re among those who are concerned about their future financial security, it may be time to give today’s whole life insurance policies a second look. They offer protection of assets, a potentially ready source of cash at retirement2, and protection for loved ones should your “race” be cut short. So don’t judge the book by its cover - find out how today’s whole life insurance can help you succeed in the pursuit of financial security.

This information is not intended as tax or legal advice. Please consult with your Attorney or Accountant prior to acting upon any of the information contained in this correspondence.

Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. The views and information contained herein have been prepared independently of the presenting Representative and are presented for informational purposes only.

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