Term Insurance Vs. Indexed Universal Life & Participating Dividend Paying Whole Life Insurance – September 3, 2023
The heavyweight insurance policies, in my opinion, are Term, IUL, and Participating Whole Life Insurance. First, we’ll talk about Term insurance, which is the most boring and simple of all life insurance policies.
Term insurance has no daily LIVING benefits, you pay it with the intention that if you die within the TERM of the policy your heirs, descendants or beneficiaries will benefit with a cash windfall. That’s the term life insurance.
The Downside To Term Life Insurance (Living Beyond Your TERM Insurance Coverage)
Whole Life Insurance was created because of the FAILURES of term insurance, what the buy term invest the difference crowd likes to ignore are the actual reasons why Whole Life Insurance was created in the first place.
The problem with TERM insurance is that the older you get the more EXPENSIVE it is to ensure you, and if an insurance company is going to offer you a term-to-100 policy or term-to-death policy, the annual premiums will be much higher than a term 5, term 10 or term 20 etc. policy because once life insurance is PERMANENT insurance, it equates to a GUARANTEE that as long as you pay the annual or monthly payments/premiums, the insurance company is contractually and legally obligated to pay you out.
The entire term insurance scheme revolves around the insurance company NOT having to pay you within the TERM of the policy, equating to whatever money you send them being their money FREE and CLEAR.
Publish Your First eBook Today Click Here For eBook Designing and Ebook Publishing all in one
If as an example, I send my auto insurance company $1200 annually, I don’t get into any car accidents, and I don’t file any claims, the insurance company takes my money free and clear, this is why insurance agents can make commissions, and insurance companies can make huge profits.
Adding to this is the insurance companies’ ability to leverage these constant streams of payments to their coughers, which they then LEND out to businesses that need the cash and will pay an interest amount to borrow that cash.
When Whole Life insurance was created and then EVOLVED, the higher annual or monthly insurance premiums/payments had to come with some benefit to the insured. If you’re unaware, life insurance is one of the hardest things to sell. I’ll put it to you like this: if you could avoid paying auto insurance, wouldn’t you? Ofcourse you would.
For most people, the thinking is, “Why should I care what happens to me when I die? I’m dead?” This is the mentality the insurance brokers and insurance companies are up against, which is where the INCENTIVES to PERMANENT life insurance come into play.
The EVOLUTION of Whole Life insurance, is actually based on CONSUMER demand; you want me to send you these huge annual payments; what do I get for it in exchange? Introducing the LIVING benefits.
In a nutshell, Dividend Paying Whole Life Insurance provides living benefits, which includes taking dividends or policy loans. Now, this is where things get ticky if you don’t know what you’re doing.
Most people when they hear “Dividends” want to take the Dividend payments, but, the more savvy Whole Life Insurance client takes the policy loan, why? Tax benefits aside, the policy loan can also pay interest, meaning that if I take out a policy loan at 5%, I might be getting back 8% on my loan.
Publish Your First eBook Today Click Here For eBook Designing and Ebook Publishing all in one
This is where I’d tell you to talk an insurance professional to learn more. By the way not all insurance brokers know how this works, because most insurance brokers only want commissions, and these “Be Your Own Banker” strategies pay lower commissions in comparison to TERM insurance for example.
Similar to Whole Life Dividend, Paying Whole Life Insurance is Indexed Universal Life Insurance. IULs are more complicated than Whole Life Insurance Plans because the end goal of IUL is SELF INSURANCE, which is how the annual premiums get down to ZERO if you invest correctly.
Investing correctly with an IUL is not easy, but the overall concept with IULs is similar to the Dividend Paying Whole Life Plans. Policy loans are the way to go, the difference with IULs is that you have the ability to potentially stop paying the insurance company ANY out-of-pocket money if you invest correctly.
There’s a big IF there, why IUL’s & Dividend Whole Life Plans are superior to buy term and invest the difference, is because they’re INSURANCE products. As an example, with IULs when you invest in the market using your IUL, you’re PRINCIPAL investment is secure, meaning that if you structure it correctly when the market goes down, you don’t lose any money.
People who’ve purchased Segregated Funds(The Insurance companies equivalent to a mutual fund) know that you can do RESETS whenever your profits go up; the same is true with IULs that are structured correctly.
Insurance companies differ from the stock market in that they’re basically OPTIONS buyers; if you invest in stocks, Options are similar to insurance; you’re basically buying positions in the stock market, and even though your SHORT TERM earning potential might appear smaller than that of a flipper(buy low, sell high) as an options trader, you’re taking a PREMIUM every single time.
This adds up with volume, and it’s one of the reasons why Insurance companies are more SOLVENT than most banks. Once you know how PERMANENT insurance works, you’d be an idiot to sell your whole life or IUL policy. As I like to remind people, there are only two weaknesses to permanent insurance: INFLATION risk and possibly an idiot politician who might implement policies or nationalize the insurance industry.
Politics and Life Insurance Do Not Mix
Why hasn’t any politician nationalized the insurance industry? Well, have you looked at the National Debt? If Insurance became politicized, that would equate to either a windfall of cash to insurance recipients, thereby increasing the national debt, or politicians themselves looking like scum for being so stinger with what would be considered “The People’s Insurance.”
In British Colombia, Canada, their political leaders created something called ICBC, which is a State-Run Insurance company, and right now in Canada, British Columbian residents pay some of the highest auto insurance fees in Canada.
Now, even those far-left Political folks in Canada weren’t dumb enough to get into Life Insurance. Life Insurance is a NIGHTMARE business because when people die, they want their money ASAP, and they have EXPECTATIONS that if the government doesn’t provide them, will turn into a SERIOUS political issue.
Furthermore, life Insurance companies put into existence money that otherwise wouldn’t exist, and the track record for the Government investing money and getting a positive return is non-existent. Democratic Politics revolves around voters, voting themselves a benefit, so if let’s say the government got into the insurance business, the voters might start demanding that ALL insurance allow for borrowing from the policy, well, as you know, with whole life insurance, you don’t have to pay back the policy, the policy will lapse if you stop paying your premiums, now imagine the Government got into whole life insurance? Remember if it’s government LIFE INSURANCE, there is a 100% chance that the voter will DIE.
Publish Your First eBook Today Click Here For eBook Designing and Ebook Publishing all in one
So let’s imagine that the government life insurance only offered term insurance? Premiums for the term life insurance would likely go up as the government made more campaign promises to voters; that’s basically what happened in British Columbia, if insurance is politicized, the insurance company becomes part of the political process.
Part of the political process involves different Political parties having differing views and implementations of those views, and you’d have to remember that life insurance would only be a SMALL part of all the other promises a politician would have made to voters.
In actuality, right now, with the existing laws structured the way they are, the Government is actually throwing away money it could be making in taxable income by putting all of these restrictions on Life Insurance companies. IULs and Whole Life Insurance products could be 10 times better than they are now.
It’s actually the existing regulations that put ceilings on insurance companies that make governments lose revenue. When people have more money, they tend to spend more on the economy, but often, the government does the OPPOSITE of what it should do, instead opting to TAX insurance companies at the point of sale, which gives the government a windfall but prevents people from putting more money into these policies.
Publish Your First eBook Today Click Here For eBook Designing and Ebook Publishing all in one
In a nutshell, Buying Term and investing the difference is a nice idea, but Permanent Insurance, in my opinion, is far superior.
Interesting times ahead