Whole Life

In our parents' day or grandparents' day, life was reasonably predictable. In your twenties, you got married once and stayed that way. By the time you were 25, you had the job you would still hold at 65; you had one litter of children who left the nest by the time you were 40 and had finished college by the time you were 45. This left you 20 years to prepare for retirement at 65 and you were dead by 75.

Prior to the early 1970's, Whole Life insurance was the workhorse of the life insurance industry. To better understand why, let's review the key characteristics of Whole life.

Whole Life insurance offers death protection that builds cash value. The cash value is absolutely guaranteed to build at a rate which will cause it to equal the face amount of the policy when the insured would reach age 100. With Whole Life, the insurance company makes an either/or promise. The company will either pay the face amount upon maturity(the insured's death or attainment of age 100, whichever comes first) or return the guaranteed cash value if the policyowner surrenders the policy or stops paying premium.

Locked-in Guaranteed premium for life

Locked-in guaranteed Death Benefit

Locked in guaranteed growth of cash value

These locked-in, guaranteed features of Whole Life have long been considered its greatest strength. They provided unshakable stability. However, for the last 30 years or so, Whole Life has become the object of a great deal of criticism. Why, for two reasons.

Reason No. 1 -- New Lifestyle Patterns

Today, Divorce is commonplace; children under one roof may be yours, mine and ours. Some people don't even get married until well into their thirties and some couples don't start having children until they are into their forties and fifties. People change jobs, mates and economic levels frequently. Some families even have tag team breadwinners -- "You work while I go to school and then I'll work while you go to school unless I join a cult, marry my receptionist and leave you with the kids!

Even without going through all of the soap opera possibiliies, the odds today of making one life insurance purchasing decision that would last a lifetime are infinitesimally small.

Economic Death

Economic death occurs when a breadwinner loses the ability to earn. If the breadwinner’s risk has been transferred to an insurance company, the company pays a claim for this economic death or loss. The insurance company cannot replace a human being like it can a car or a building, but it can replace the dollars that he or she could have earned had there been no disruption.

Physical Death:

A breadwinner dies during the earning period of life. All life policies are designed to provide for the contingency of premature physical death. (Life Insurance)

Retirement Death:

A breadwinner reaches retirement without accumulating adequate cash to provide for a reasonable retirement income. Not surprisingly many more people experience retirement death than premature physical death. Some life policies can help accumulate the funds necessary to reduce the possibility of retirement death and many of the traditional retirement plans can be funded by products sold by life insurance companies. (Annuities—a way of purchasing a guaranteed income for life)

Living Death (Disability):

This sounds worse than death and it probably is. If you are a single person and die, your income stops, but so do your expenses. It’s not a desirable state, but it does balance. If you become disabled, you have not one problem but several. Your income stops, your normal expenses continue, and on top of it all you have a new layer of expenses in the form of medical bills. The two basic forms of health insurance are necessary to handle these problems. Disability Income policies can replace lost income and Medical Expense policies can pay for medical bills.