The Facts of Life: The Case for Permanent Life Insurance

By: Paul V. Shaheen, RHU, REBC / Vice President

Let’s face it, we’re all getting older, and according to AARP, nearly 10,000 of us are turning age 65 every day. Whether we retire at age 65 or later, the question becomes: will we have enough to live comfortably or maintain our current lifestyle?

To date, the overwhelming body of data suggests otherwise. According to Georgetown University’s Center for Retirement Initiatives, the current global retirement savings gap stands at nearly $70 trillion and is expected to rise to $400 trillion by 2050. This means many of us are not saving enough at our local bank, credit union, or via our annuities IRA’s and 401K’s. How do we close the gap, and how do we also close the so-called life insurance gap, which is currently estimated at $25 trillion and rising according to Swiss Re?

When it comes to investing and saving, most think of the vehicles mentioned above, not to mention bonds, stocks, personal property, and other traditional avenues toward retirement. But do we think about life insurance in the same vein? According to the accounting firm Ernst & Young, people are better off over the long haul if they blend permanent life insurance into their overall retirement portfolio.

Doesn’t permanent life just pay a basic dividend?

Can’t I do way better in my 401k, IRA and/or the stock market? Not exactly! True, if you invest wisely and can get past the generational volatility both time and history can bring, your 401k, IRA and stock holdings can/will reap many long-term rewards. But here’s something to keep in mind: With the exception of Roth IRAs and certain government bonds, most investment returns are taxable, whereas money that builds inside permanent life insurance is always TAX-FREE.

Further, whereas market fluctuations can wreak havoc on your account depending on when you choose to retire, permanent life insurance, especially whole life insurance, pays a steady and safe annual dividend, which could be lower in its return than your 401K in some years, but in other years will actually outperform it and then some, especially if you place your coverage with a steady and stable carrier.

And know this as well. Not only does money inside a permanent life policy always grow tax-free, you can borrow from your policy without any tax nor ever have to pay the money back! (At death, your benefit would simply be reduced by the amount you’d taken out of the policy). Further, money inside a life insurance policy is always protected from such things as bankruptcy, and your cash value isn’t considered an asset when your kids start applying for (college) student loans.

Now with all this said, two points:

• First off, this is not to suggest someone should only invest in life insurance and no other forms of investing. Of course not. Any sound retirement strategy requires a blend of all sorts of savings and investment plans.
• Secondly, while permanent life insurance has its long-term advantages, this is also not to suggest that basic term insurance has no role when it comes to overall asset and family protection.

In your younger years, when family, a home mortgage and all manner of financial obligations put you at arguably your highest level of risk, inexpensive term life insurance is just the trick to be sure you have the most amount of life insurance coverage you can get when you need it most.

From an insurance perspective, a blend of term and permanent coverage is always recommended. Don’t for a moment assume that by the time you retire, you won’t need any more life insurance. More and more of us are still working into our later years, putting kids through college, and still have debts and obligations at age 65 and beyond. Yet, even if you are debt-free at that point (or at some point down the road), what harm is there in maintaining some level of permanent coverage for your spouse, kids, grandkids or even your favorite charity, not to mention the retirement advantages mentioned above.

Finally, remember that most permanent life insurance plans now offer the flexibility of borrowing from your death benefit while living should you need long-term care, something statistics suggest that as many as 70% of us will need by the time we turn 65 (www.longtermcare.gov).

Permanent life insurance can not only help build a nest egg, it can help you protect it as well.

Because life happens.