Boris: Good Heavens!
Natasha: Boris! You said ‘Heavens’!
Boris: What can I do? They won’t let me plug the competition.
— Boris and Natasha, from The Adventures of Rocky and Bullwinkle
A question I often get from folks is “why haven’t I heard of anyone else using whole life insurance before?”
This sort of gets to the heart of the matter, doesn’t it?
One of the toughest things for me to do is to get people think independently about whether something is a good idea or a bad idea. Instead, many many people seem to be more concerned with whether someone else is doing it.
And, usually, those “other people” are doing it because they saw or heard that someone else was doing it, and so on. I’d like to believe that, at some point, someone gave this some serious thought. But… methinx this is a case of the blind following the blind.
So, naturealy, when everyone is doing the same thing, no one is going to say “hey, you should do this other thing that no one else is doing.”
Remember… quite a lot of people follow the crowd and are more concerned about doing what others are doing (and how others perceive them) instead of thinking independently for themselves and validating the ideas being told to them by the crowd.
It’s your basic recipe for tribalism.
I know. Harsh. But… true.
And an advisor, who is competing for business, is unlikely to plug the competition, even if they have a superior approach to financial planning. They are much more likely to promote what other people are already buying into. Why rock the boat… especially when your paycheck is on the line? Which means, there are lots more advisors selling 401(k) plans than there are advisors selling life insurance plans because… 401(k)s are promoted and popular with everyone. They’re more popular than life insurance. Way more popular. The mutual fund industry, for example, is a milti-trillion-dollar industry. The life insurance industry is only a multi-billion-dollar industry. Heck, even the government actively promotes the idea of a 401(k). 10,0000 tenured government bureaucrats can’t be wrong, right? And… when you have government actively promoting their own tax loopholes, meh… you’re swimming upstream if you try promoting something else.
Even so… the fact of the matter is millions of people own whole life insurance. Whether they bought it for estate planning purposes, or they boight it for supplemental retiremrnt income, or they bought it because they want a burial fund, they own it.
The stats on that are fairly solid.
And despite being smaller than the brokerage industry, it’s far more stable. It’s so stable, many banks use life insurance companies to secure their own tier one capital (a measure of a bank’s solvency).
Of the millions of policyholders who own whole life insurance, only a small percentage of them own a high cash value, custom, whole life insurance policy.
This “type” of insurance technically isn’t a different type of insurance but rather a customized version of a product sold by a life insurance company. Specifically, it’s whole life insurance designed to accumulate a substantial amount of cash value quickly at the expense of a high initial or starting death benefit. Internal costs tend to be lower for this type of design because the amount of insurance being purchased is lower (hence the fast cash value buildup).
I wrote about this in my last case study, where I showed how a client used one of my custom designed whole life policies to buy a vehicle… cutting out the dealership and pocketing the interest she would have otherwise paid to another lender.
Interesting stuff… but only if you have the gumption to follow through.