'Whole life' enjoys revival after long hibernation

Insurers target the pricey policies at thirtysomethings

Oct 15, 2007 @ 12:01 am

By Darla Mercado

Insurance companies are bringing whole-life insurance back into the fore, this time for a customer base of thirtysomethings. In the past, whole life has lived in the shadow of term life insurance. The latter offers cheaper premiums and the attendant opportunity to invest elsewhere money that would have been spent on a costlier whole-life policy. "Whole life hasn't traditionally been pushed, primarily because it requires the highest premium commitment, and that's because the contract has the most guarantees," said Frank Howell, senior vice president of sales support operations for The Penn Mutual Life Insurance Co. of Horsham, Pa. "That's typically not a perfect match for this generation, which is attuned to mutual fund investments and having risk," he said. Industry observers say the policies were more predominant in the 1970s, when interest rates for fixed investments such as CDs and bonds were low, but the cash value component of a whole-life product was accumulating at a competitive rate. Insurance companies and advisers alike are finding ways for whole life to fit into the lives of people in their 30s, as opposed to older individuals. Those who are part of Generation X -— that is, those who were born between 1965 and 1975 — are young enough to qualify for lower whole-life premiums, and they can stay in the policy for the long run. And because they are on the upswing of their careers, they are increasing their wealth, so they don't have to go for the cheaper term policy.

"[Gen Xers] should consider whole life if they believe they may have a permanent need for insurance," said Leon Rousso, founder of Leon Rousso CFP and Associates of Ventura, Calif. "Whole-life insurance is purchased most often by the individual who would settle for a fixed mortgage at 6%, versus [an interest-only mortgage plan] starting at 4.5%."

Educated, working thirtysomethings who are single with no dependents and limited cash flow are probably the most likely candidates for term life policies because the coverage is low cost and temporary, insurance representatives said.

But those who have families are good bets for whole life, some said.

"Young families not only need more life insurance than they realize, they will likely have a permanent need for it," said Chris Blunt, senior vice president and chief operating officer of life and annuity at New York Life Insurance Co. "They have a long life expectancy and will likely need insurance for the whole of their life."

Mr. Rousso agrees, saying that although permanent insurance can cost up to 10 times as much as a level-term plan, the savings from a term policy go out the window once clients reach their 50s, as premiums rise. Whole life, on the other hand, has level premiums.

Thirtysomethings who have special-needs children, as well as single parents with discretionary income, are prime candidates for whole life, as they need long-term coverage in the event of a disaster, he added.

Various insurance representatives insist that the portion of whole-life insurance that is invested can be used to help cover costs during the life of the policyholder.

"We have stories where younger couples have purchased a permanent insurance plan and tapped into the whole-life cash value for emergencies and additional expenses," said Meridee Maynard, senior vice president of Northwestern Mutual Life Insurance Co. of Milwaukee. She spoke of a Generation X couple that used their cash balance to cover the cost of in-vitro fertilization to conceive their first child.

Also, the invested portion of the whole-life premium builds with time, so it is forced savings for a generation that doesn't like to save and may not have the money for a mutual fund, Ms. Maynard added.

But financial advisers frown upon the idea of substituting an insurance policy for an actual investment product.

"All the bad-mouthing [of whole life] is based on presentation techniques that create a misunderstanding to the customer," Mr. Rousso said.

"Agents used to present these things as alternative investments and not protection," he said. "It's not an investment: You're in it for the death benefit."

Plus, the returns for the invested portion of the policy are tame, as they are roughly equivalent to those of bond investments, according to Mr. Howell. "Insurance is a staple asset class for clients, but it won't replace a 401(k)," he added.

Nevertheless, insurance companies have taken steps to educate advisers on how to use this product with thirtysomethings, and also to get a better grasp of how large the client base is.

Northwestern and New York Life are getting to know their thirtysomething clientele and their needs through research. Last fall, New York Life launched its Family Protection Insurance, a term policy targeting young middle-class families which can be converted into a permanent one.

"As an industry, we could have done a better job of educating the Gen X consumers," said Mr. Howell, who is himself a Gen Xer.

"They're very busy and don't have time to sit down and learn," he said. "Hopefully, they recognize the need for life insurance."

To meet that need, Penn Life has stepped up efforts to pitch the products to wholesalers, who provide advisers with interactive training and point-of-sale tools to educate clients on the insurance products that are available, and use them as part of a holistic financial plan.

But education works in tandem with honesty, Mr. Rousso said. And that includes recommending the right product at the right time, acknowledging the higher commission for selling a more expensive policy and ensuring that the consumer knows how insurance compares with investment assets.

"No one is a life insurance agent any longer; we are all financial planners," he said.

"I think life insurance can be a respectable profession again if we sell the steak and not the sizzle," Mr. Rousso said. "Life insurance does not sizzle."

Darla Mercado can be reached at dmercado@crain.com.

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