Life Line

Posted by David F. Woods, CLU, ChFC, LIFE Foundation President
In the February 21st edition of The Wall Street Journal, Karen Damato wrote a helpful article about term life insurance. She offers some good suggestions and appears to understand the subject quite well. But I wish Karen or someone else would write an article analyzing permanent life insurance and how to buy it. Let me start by saying I have no problem with term insurance. I have owned it, I have sold it, my kids own it. But I also have long owned a lot of permanent life insurance and am extremely happy I have done so. Here's why.

As I approach retirement I have no desire to reduce the amount of my life insurance. Even though the kids are long gone, the mortgage is paid off, I have no debt and am fortunate to have a fairly healthy retirement nest egg, I also have no idea what the future might hold. How long will I live? How long will my widow live? What will our health be? Will we have to dip heavily into our nest egg for health reasons - ours or our children's or grandchildren's? What will inflation mean to our nest egg? What will the stock and bond markets mean to our nest egg?

I don't know the answer to any of these questions and more. But I do know that my permanent life insurance will always be there to guaranty that no matter what happens, there will be money for my survivors. And, since this permanent life insurance has built up a substantial cash value over the years, I have a significant emergency fund, guaranteed by the life insurance company reserves as mandated by state regulatory authorities. Like any sound structure, my financial structure as I face the uncertain future is built on a solid foundation, the core of which is permanent life insurance. And, best of all, when my earned income stops, I can also stop paying premiums in cash and let the policy dividends pay the premiums, resulting in no loss of coverage at no out-of-pocket cost to me.

But there is a catch. I would not be in this enviable position if I had waited until I was 55 or 60 or 65 to begin. The premium cost would have been too high and I would not have had enough time to accumulate the substantial nest egg in cash surrender values. The secret is to start young with as much insurance as you need, recognizing you will undoubtedly have to add to it over the years as your standard of living improves and as other obligations (more children, larger mortgage etc.) arise. But at the same time it is vital to discipline yourself to begin as early as possible to mix in as much permanent insurance as you can afford. But, as Shakespeare said, "There's the rub."

"Affordability" is a relative term because it implies alternatives and, therefore, choices. And making the right choices requires character. Choices such as:

"Do we pay the mortgage or buy some permanent life insurance?" That choice is easy. No character required.

"Do we take a European vacation or stay in the U.S. and use the money saved to buy some permanent life insurance?" That's a much more difficult choice. Character required.

"Do we save for college or buy permanent life insurance?" Maybe permanent life insurance will accomplish both. It did for me. I didn't have to choose. Character required to take the time to understand how this works.

I could go on and on, but based on my experience over 40 years of helping people with their financial security needs, as well as my own financial situation, I want to make one point very clear. Term insurance is a fine product and is a vital part of the financial security mix. But to think that term insurance is all you will ever need may be short sighted. People need to consider the vagaries of life that inevitably affect all of us. Only permanent life insurance is a "product for all seasons". However, buying it takes a degree of sacrificing today for tomorrow, something most of us really don't like to do. But once you start it, it becomes addictive, particularly as you see your cash surrender value account grow over the years.

So, Karen Damato and Jonathan Clements and others, take some time to really explore the role of permanent life insurance in the long-term financial security needs of your readers. It is a magical product. And don't be put off by the "buy term and invest the difference" philosophy. First of all, it doesn't make nearly the economic sense many allege. And secondly, it depends heavily on the discipline to invest the difference on a regular basis. Something very few of us have the self discipline to do.

But that's the subject of another post.