D4 Thursday, September 17, 2009 THE WALL STREET JOURNAL.
Special Advertising Section
{ September is Life Insurance Awareness Month }
Life insurance
The
Resurgence
of
Whole Life
As markets waiver, more
people turn to cash value
life insurance to diversify
their investment portfolios
By Russ Banham
It’s become an all-too-common scenario
in this period of economic recession and
high unemployment — people suddenly
out of work with a need for cash for their
living expenses, yet having investments
largely tied up in equities that are under-
water.
Digging into a 401(k) plan is an option,
but the penalties are exorbitant and the
value of stocks within it is much less than
a few years ago. Selling the house is an-
other option, but its value has also fallen.
Dipping into the children’s college funds
seems unthinkable. An alternative that
offers trouble-free recourse in the harsh
realities of the recession is borrowing
against a whole life insurance policy.
A Living Benefit
Whole life, or permanent life, as it is also called, is
experiencing a revival of interest as a long-term invest-
ment to weather difficult economic times. Aside from
the death benefit, the insurance provides a tax-deferred
buildup of cash values that can be borrowed against die. The cash is readily available, although the longer Even concerns about the financial solvency of an is-
on a tax-favorable basis, providing a ready source of you have the policy, the more cash you can borrow.” suing carrier have been addressed, with guaranty in-
capital when other sources of money are problematic Experts say that the automatic savings from a whole surance funds established in all 50 states to pay claims
or hard to come by. life is a great way to prepare for unforeseen needs. of bankrupt insurers that mitigate much of the poten-
“Whole life insurance is the oldest type of life in- “When times are tough, the cash value from a whole tial financial exposure.
surance, and used to dominate the market until the life policy can be a personal emergency fund that helps “To the extent you’ve bought the insurance with the
advent of newer forms like variable life and univer- you weather the financial storm,” Keating says. aid of a knowledgeable agent and from a strong compa-
sal life about 30 years ago,” says Elaine Tumicki, cor- Two types of insurance companies sell whole life ny, and you are able to maintain payment of premiums
porate vice president of product research at LIMRA, a policies — mutual and stock insurers. The former is over the long term, you should have a valuable invest-
Windsor, Conn.-based insurance research firm. “With owned by policyholders and man- ment you can use as cash to help
the investment climate taking a toll on these newer aged for their long-term financial se- weather an economic crisis,” says
forms — variable life premiums, for example, are in- curity; the latter is owned by share- Harold Skipper, professor emeritus
vested in the stock market — whole life is resurgent, holders and managed for short-term “When times are tough, of risk management and insurance
now representing 28 percent of all new premiums, the and long-term shareholder value. at Georgia State University.
highest it’s been in a decade.” Whole life insurance is also struc- the cash value Deanna Mulligan, executive vice
Whole life insurance provides lifelong protection, tured to provide an additional return president of individual life and
guaranteeing the policyholder that in the event of to the policyholder — a dividend — from a whole life disability at The Guardian Life
his or her death a benefit based on the stated face beyond the guaranteed return. Insurance Company of America,
amount of the policy will be provided to the ben- “The net premiums paid by the policy can be a also sees whole life as a safe harbor
eficiaries. The premium paid by the policyholder is policyholder are invested in the during an economic storm. “We
guaranteed never to change. The cash value of the general investment account of the personal emergency hear from our policyholders that
policy — the buildup of cash within the policy or the life insurance company, and if the their whole life statement is the only
amount offered to the policyholder by the issuing in- account fares better than expected, fund that helps financial statement they look for-
surer upon cancellation of the policy — is guaranteed the policyholders get to partici- ward to opening these days.”
to grow each year until it equals the face amount of pate in the excess returns over and you weather the
the policy at a specified age. above the guarantees,” explains Da- Different Options
It is this cash value that makes whole life insurance ragh O’Sullivan, vice president of financial storm.” Still, whole life insurance isn’t
an important component of a diversified investment life product management at John for everybody. Its higher annual
portfolio. The capital accumulated in the policy can be Hancock Life Insurance Company. — Frank keating cost deters some, who may opt for
tapped in a pinch to pay the mortgage or the car loan. Although the dividends are not less-pricey term insurance, which
Money can also be borrowed to supplement retirement guaranteed, O’Sullivan says. “Almost provides a comparable death ben-
expenses, improve a home for sale, pay for college tu- all whole life policies sold provide returns in excess of efit but does not include a cash value component that
itions or invest in a business, among other wide-rang- the basic guarantees. Some insurers will forego provid- can be borrowed against. Once the specified term or
ing scenarios. The policy loan doesn’t require repay- ing a dividend in return for even greater guaranteed time length of the policy has elapsed, the death ben-
ment (the amount is simply deducted from the policy cash values.” efit vanishes.
payout at death), and is available irrespective of the When a life insurer’s general account achieves a sub- Buying another term policy after the first has expired
borrower’s credit history. stantial return in a given year, it is not uncommon for can be costly, depending on the applicant’s age. Conse-
This “living benefit,” as insurers call it, may be the dividend to exceed the annual premium paid (de- quently, many policyholders 60 years of age and older
as valuable to a policyholder as the customary pending on the dividend option chosen). whose term policies have terminated typically pass on
“death benefit.” buying another one. “At age 65 the cost of term insur-
Stable Return ance is exorbitant because of the greater risk of dy-
Built to Borrow As an investment vehicle, whole life insurance falls ing,” explains Michael Book, a life insurance general
“In addition to the insurance protection, whole life into the conservative bucket. Insurers typically invest agent and managing partner at Fifth Avenue Financial
provides a mandatory savings that you can borrow in the premiums they collect in lower-risk fixed income in New York.
an emergency or to help fund college or other expens- instruments, which provide a stable return, typically With term insurance, if the policyholder dies during
es,” explains Frank Keating, president and CEO of the less than five percent. The insurer guarantees this re- the policy term, the beneficiaries receive the death
American Council of Life Insurers (ACLI) and a former turn, making whole life a reliable source of funds in benefit. If the policyholder survives and the policy
governor of Oklahoma. “You can pay back this money an emergency — assuming the policy has been in exis-
or have it deducted from the death benefit when you tence long enough to build up cash value. Continued
Illustrations by Peter and Maria Hoey

D6 Thursday, September 17, 2009 THE WALL STREET JOURNAL.
Special Advertising Section
Resurgence used to buy the deceased partner’s share
in the business from his or her estate.
Continued
expires, there is no financial return to
Protecting the Most Important Insurance carriers and agents regu-
larly advise clients to work with their
the buyer and the insurance company
comes out ahead.
Asset — Your Children tax and legal advisers to structure
the policy ownership and beneficiary
Nevertheless, the guaranteed death designations appropriate to the individ-
benefit and the low monthly premiums One couple uses whole life to care for special needs ual situation.
of term insurance make it an attractive “A major reason for a business failing is
choice for many people, particularly Ann and David MacLaren discov- investments, including stocks, a the death of an owner or key employee,”
those just starting out. ered a critical purpose for whole life 401(k) plan and even term insur- Mulligan notes. “The solution is a buy-
insurance — the care of their children. ance, David MacLaren comments sell agreement that stipulates the price to
Financial Safety Net “We have four children, three of whom that “term life doesn’t last forever, buy out the shares of a deceased busi-
Melissa Millan, senior vice presi- have special needs,” explains Ann and the last couple years taught us ness owner, and then to informally fund
dent at Springfield, Mass.-based insur- MacLaren. “Our twin 15 year-old boys that you can’t rely on the stock mar- it with a whole life insurance policy. You
er MassMutual Financial Group, says have autism and we have a daughter ket for your enduring needs. We want don’t want to have to liquidate other as-
whole life insurance gives policyholders from China who is eight and legally to ensure that our children have ac- sets to make the purchase, especially in a
access to their own money to address blind from toxoplasmosis, a parasitic cess to financial resources that are down market.”
the vicissitudes of life — the death of a disease common in the developing stable and will build over the long Businesses also give whole life insur-
loved one, a sudden change in employ- world. We were concerned about their term to fund the trust.” ance to key executives as an employee
ment or a significant loss in the value of ongoing needs in the event we’re not The MacLarens purchased the benefit. “If they leave the company be-
other investments. here to take care of them.” whole life insurance last year, which fore a certain date, they lose access to
“Policyholders can borrow against the The MacLarens, from Fortville, did not come cheap, David concedes. the policy,” explains Timothy Flanagan,
cash value of their policies to provide a Ind., turned to their financial adviser Yet, he says, the timing was right: a life insurance general agent and presi-
financial safety net should they need it. and an estate attorney to help ad- Had he invested the money instead dent of Hinrichs Flanagan Financial in
Only in cases of dire need should they dress their concerns. They were coun- in stocks or bonds, the overall value Charlotte, N.C.
consider surrendering their policies, seled to purchase a whole life insur- would be much less today. “We can’t “With each passing year, you’re pro-
as they’d lose many benefits includ- ance policy that provided traditional know and will never know just how in- viding a greater incentive for employ-
ing the main one — the death benefit,” benefits like permanent coverage and dependent our kids will be or the judg- ees to stick around, as they watch the
she notes. built-up cash value. The proceeds ment calls they’ll make,” says Ann. cash value of their policies continue to
Its flexibility and broad range of uses, from the policy after both David’s and “Having the insurance and knowing grow. Some insurers will even allow the
in both good times and bad, makes whole Ann’s deaths would flow into a Special the proceeds will go into a trust for insurance to be transferred to another
life increasingly popular as a strategic in- Needs Trust. their benefit has given us great peace executive if the original policyholder
vestment vehicle. While the MacLarens have other of mind.” decides to terminate employment,”
De th d T xes: For one, the U.S. notes Flanagan.
Government permits the death benefit Whole life insurance provides access to
to be income tax-free. Uncle Sam also needed cash when a small business own-
sanctions treating the cash values that policy into an irrevocable trust, which keep the value of these assets intact. er does not want to liquidate equities,
build up inside the policy on a tax-de- for tax purposes resides outside the es- Opportu ty K ocks: Knowing there real estate or other illiquid instruments to
ferred basis, and allows policyholders to tate. If, after you die, the IRS asserts a is a pot at the end of the rainbow — the obtain it. Flanagan points out that “Sam
borrow from the cash value of a policy $7 million estate tax liability, your heirs cash value built up over years of pay- Walton, Walt Disney and J.C. Penney all
on a tax-favored basis. “You can draw could liquidate your assets to pay the ing premiums — a policyholder work- leveraged the value of their life insurance
out this money without tax consequenc- taxes, but if those assets are underper- ing with a financial adviser may wish policies as a financing vehicle to assist
es depending on the policy structure,” forming, they would be loath to cash to pursue higher risk/higher yield in- their business plans.”
Millan says. them in. Instead, the irrevocable trust vestments. When opportunities arise to An added small business bonus: The
Est te Pl g: Whole life policies could write a check to the IRS for the $7 benefit from an upswing in a particular cash value of a whole life policy is pro-
offer the prospect of a cash disburse- million tax bill, preserving other assets investment class like stocks, cash can tected in many states from bankruptcy
ment that can be directed towards pay- for a rebound in value — and preserv- be borrowed from the policy to invest in and personal liability lawsuits.
ing estate and inheritance taxes, al- ing the maximum value of the estate for these potentially higher-income assets.
lowing one’s heirs to avoid having to your heirs. Ret reme t Flex b l ty: Since a whole Ideal for Diversification
liquidate the estate at a time when as- L qu d ty: Access immediate cash life insurance policy often provides Although it is more expensive than
sets may be depressed. when the bulk of investments may be returns beyond the guaranteed cash term life insurance, whole life insurance
For example, say you purchased a $10 in securities, real estate or other illiquid value, the policyholder can use this ad- is permanent, lasting through a per-
million policy and it has reached maturi- vehicles. Again, by leveraging the cash ditional sum at retirement while main- son’s lifetime. Since premiums must be
ty. You can direct the proceeds from the value of a whole life policy, investors can taining the full value of the policy. “The paid regularly, the insurance is a form
guaranteed cash value of a whole life of forced savings. In return, the policy
policy is actually the worst-case scenar- provides a guaranteed financial return,
io,” O’Sullivan notes. albeit at a conserva-
“Typically, the policy tive rate, that argues
will provide a greater “You can draw out for whole life as a
cash value that can be key element in di-
cashed in, borrowed this money without versified investment
against, or the entire planning.
policy can be converted tax consequences “The current eco-
to another product like nomic crisis has
an annuity.” depending on the highlighted the im-
Keating recently con- portance of having an
verted the full value of policy structure.” appropriately diversi-
one of his whole life fied investment port-
policies into an annuity, — MELiSSa MiLLan folio, and traditional
he says, “to provide a whole life insurance
regular income stream fits into such a port-
when I retire.” folio,” says Professor
Sm ll Bus ess Solut o : For growing Skipper. “Many people fail to grasp the
companies, whole life delivers an array importance of whole life, but it’s in a
of advantages. For starters, many enter- downturn when you really see its value.”
prises buy whole life insurance if the
company is owned jointly. Each partner Russ Banham is a veteran business journalist.
owns and is the beneficiary of a policy His articles have appeared in Forbes, The Econo-
on the other’s life. In the event one of mist, CFO, and U.S. News & World Report. His
the partners dies, the cash can then be latest book is “The Fight for Fairfax.”
Finding a Missing Life Insurance Policy
If you suspect your loved one had a policy, but cannot locate it, you may want to
conduct your own search using the steps provided below. As an alternative, MIB, an
insurance membership corporation, offers a policy locater service for a fee.
For more information about this service, visit MIB’s Web site:
www.mibsolutions.com/lost-life-insurance/.
• Check your loved one’s papers and • Review your loved one’s income tax
address and telephone books to look for returns for the past two years. Look for
life insurance policies and the names of interest income from and interest ex-
insurance agents. Contact every insur- penses paid to life insurance companies.
ance company with which they had a Life insurance companies pay interest
policy, even if you’re not sure the policy on accumulations on permanent policies
is still in force. and charge interest on policy loans.
• Check with the employee benefits of- • Check with the state’s unclaimed
fice at their latest and previous places of property office to see if any unclaimed
employment. Or, check with the union money from life insurance policies may
welfare office. have been turned over to the state. If,
• Check bank books and canceled after a number of years, an insurance
checks for the last few years to see if any company holding the unclaimed money
checks may have been written to pay life cannot find the rightful owner, it turns
insurance premiums. the money over to the state.
• Check the mail for one year after • Of course, you may wish to contact
death for premium notices, which are life insurance companies directly to see
usually sent annually. If a policy has if a policy exists. Each state insurance
been paid up, there will not be any notice department has a listing of life insur-
of premium payments due. However, the ance companies licensed to do business
company may still send an annual notice in its state.
regarding the status of the policy or it
may pay or send notice of a dividend. Source: ACLI

THE WALL STREET JOURNAL. Thursday, September 17, 2009 D7
Special Advertising Section
Customizing Coverage with Policy Riders
Life insurance can be enhanced through the purchase Another rider that meets a special need is the Ac- waives the payment of future premiums if the policy-
of policy riders, which provide additional benefits and/ celerated Death Benefit Rider, which gives terminally holder becomes permanently disabled. Broader protec-
or expanded coverages. Many life insurers offer a wide ill policyholders the opportunity to cash in part of tions are afforded by buying a Disability Income Rider,
selection of riders, each addressing a unique personal the death benefit while still alive to pay for long-term which provides a stated sum per month if the insured
financial need. medical care or confinement in a nursing home. Similar becomes totally disabled and unable to earn an income.
A common rider is the Accidental Death Benefit Rider, needs are met by purchasing a Long-Term Care Rider, Many other riders are available, and insurers regu-
which provides the beneficiary an additional financial which provides cash to be used toward nursing home larly invent new ones. A word of caution: Riders are
amount if the named insured dies as a result of an acci- care or home care. not standard fare; their contracted terms, conditions
dent. In many policies, this amount typically is doubled, Other common riders include the Guaranteed Insur- and cost vary from one insurer to the next. It is impor-
hence the term “Double Indemnity.” The rider address- ability Rider and the Waiver of Premium Rider. The tant to discuss the different types of riders and their
es the risk of someone young, healthy and otherwise former permits the policyholder to increase the finan- respective features with an insurance agent or finan-
expected to live a long time who dies suddenly, causing cial limits of the insurance at specified policy inter- cial adviser.
unanticipated financial stress for his or her family. vals, without the need to prove insurability. The latter — R.B.
COMPARING LIFE INSURANCE POLICIES
Lif ins anc has c m a l ng way f m n -siz - and niv sal lif p lici s w c at d t p vid th abs b th inv stm nt isk and typically inv st p li-
fits-all. Wh l lif ins anc , th g anddaddy f all lif pp t nity f p licyh ld s t p t ntially achi v cyh ld p mi ms in p ima ily l w- isk, stabl , fix d
ins anc p d cts, is j st n typ f lif ins anc g at inv stm nt t n than hist ically ff d by inc m inst m nts.
ff ing. In c nt d cad s, n w f ms f lif ins - wh l lif p lici s. Ins -paid divid nds, th gh n t g a ant d, may
anc hav m g d, s ch as t m lif , va iabl lif and A d clin in th st ck ma k t can aff ct th inv st- p vid additi nal financial val . What is g a ant d
niv sal lif . m nt val f b th va iabl and niv sal lif p d- is th cash val f th p licy.
Th n w p lici s w p dicat d n m ting th cts, which inv st a m ch g at p ti n f p licy- Wh all f typ s f lif ins anc p lici s c n-
diff nt n ds f individ als — t m lif , f instanc , h ld p mi ms in q iti s (va iabl lif ) a link d v g t sha val is th d ath b n fit. Va i s tax
ff s aff dabl p mi ms, alb it th ins anc t p vailing int st at s ( niv sal lif ). b n fits a als p vid d, th gh it is b st t disc ss
xpi s aft th t m has laps d. N w va iabl lif Ins s f wh l lif p lici s, n th th hand, th s with a c tifi d financial advis .
>> Inc m tax-f d ath b n fit >> Inc m tax-f d ath b n fit >> Inc m tax-f d ath b n fit >> Inc m tax-f d ath b n fit
>> T m p i d >> C v ag p i d bas d n >> C v ag p i d bas d n >> Lif tim c v ag
>> Fix d p mi ms p mi ms paid p mi ms paid
>> Has cash val
>> N inv stm nt isk >> Has cash acc nt val >> Has cash acc nt val
>> Can b w against cash val
>> Can b w against cash val >> Can b w against cash val
>> Fix d p mi m with s m
>> Fl xibl p mi ms >> Fl xibl p mi ms fl xibility
>> Can s cash val t >> Can s cash val t >> Can s cash val t
pay p mi ms pay p mi ms pay p mi ms
>> Ins abs bs minim m >> Ins abs bs minim m >> Ins will abs b
g a ant isk; p licyh ld g a ant isk; p licyh ld any inv stm nt isk
abs bs isk ab v that abs bs isk ab v that
SourCe: ACLI
WHOLE LIFE INSURANCE
MEANS MORE THAN
PROTECTION.
IT MEANS FREEDOM.
Choose Whole Life insurance from Guardian and enjoy the freedom to use your assets during your lifetime
while still leaving a legacy. Help supplement your retirement, start a new business and more.
Working with some of the finest financial professionals in the industry gives you the freedom to make
the right choices for you.
Choosing Guardian, a nearly 150-year-old company, frees you from concern. We answer to our policyholders,
not stockholders. And our ability to pay dividends remains as strong as ever. We’re built to weather the tough
times with a diversified portfolio, sound risk management and farsighted investment strategy. Even in the
turbulent environment of 2008, Guardian was the only major life insurer to earn upgrades from two major
rating agencies—ratings that still stand. And we paid our largest dividend ever in 2009.
To learn more, visit us at www.GuardianLife.com.
LIFE INSURANCE DISABILITY INCOME INSURANCE LONG TERM CARE INSURANCE INVESTMENTS RETIREMENT EMPLOYEE BENEFITS
©2009. Disability income products and Long Term Care Insurance underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian
Life Insurance Company of America (Guardian), New York, NY. Products not available in all states. Product provisions and features may vary from state to state.
Securities products and services offered through Park Avenue Securities, LLC (PAS), PAS is a wholly owned subsidiary of The Guardian Life Insurance Company of America (Guardian) 7 Hanover Square,
New York, NY 10004. PAS is a registered investment advisor and broker/dealer.
PAS is a member FINRA/ SIPC.
Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors.