Investment Commentary

Why Whole Life Is Getting a Workplace Lift

By Jon Shuman

For the first time ever, more people own group life insurance rather than individual policies, LIMRA reports1.  It speaks volumes about the credibility that Americans place in their employers as a source of financial security and wellness.

Meanwhile, sales of life insurance have notched several other related milestones:

  • The number of people who own some form of life insurance has grown to a record 172 million (2016 LIMRA Ownership Study1). The increase in life insurance ownership is being driven primarily by people ages 18 to 44 – the prime time for starting and raising families – as ownership by people age 45 and older declines.

  • Sales of voluntary whole life policies increased by 13 percent in the first three quarters in 2016 (LIMRA U.S. Worksite Sales, Third Quarter Review2).

  • Premiums for individual whole life insurance have grown every year since 2006 as consumers have gravitated to the product’s straight-forward design, built-in guarantees, and dividend potential. (LIMRA’s U.S. Retail Life Insurance Sales report, 3rd Quarter 20163).  Whole life now accounts for 36 percent of the entire individual life insurance market, the study finds.

These trends are positive news for continued strong sales of life insurance at the workplace, especially for whole life insurance. Whole life can be seen as a financial building block, providing insureds’ families with a source of guaranteed financial security.

The underlying value of whole life was punctuated with an exclamation point by the Great Recession of 2007—2009 when more people began gravitating to the product’s fixed rates and guarantees. While the stock market dropped like a stone, devastating retirement accounts and other equity-oriented investments, whole life policies remained generally unaffected.

The stability and permanency of whole life provides financial protection against the premature death of a breadwinner. But whole life also offers “living benefits” that can be accessed for a myriad of financial needs. The cash value that grows inside a policy is guaranteed, meaning it increases each year, will never decline due to changes in the financial markets, and offers a reliable source of funds – even during economic downturns.

Whole life is a dependable source of financial security, especially for Middle America. Consider that many financial planners recommend accumulating six to nine months’ of savings as a hedge against financial emergencies such as a job loss, serious illness or injury, or other problem. Yet, 29 percent of Americans report having no emergency savings and 21 percent couldn’t cover three months' expenses, according to Bankrate.com’s 2016 Financial Security Index.4

Whole life can help by serving as a source of forced savings as policyholders pay their premiums and build up their cash values. Policyowners can access their cash values through withdrawals or loans. During and immediately after the Great Recession – from 2008 through the first half of 2010 -- MassMutual reported that loans from whole life policies increased by $600 million.  No doubt many of those loans were taken as other sources of funds dried up.

The cash value from a policy can be used for any reason, including a source of emergency funds much like a savings account. The inside build-up often is eyed for longer-term needs such as paying college tuition or other educational expenses or retirement income.

Whole life policies can be especially valuable as a retirement-planning tool. The death benefit can provide a source of retirement income to replace the loss of Social Security benefits after the death of a spouse.

Also, some people earmark the death benefit as a substitute for the survivor benefits from a defined benefit pension. Opting out of the survivor benefit, which can be accomplished only with the consent of a spouse, typically boosts the pension’s income stream. Agents, brokers and advisors can help clients determine whether this strategy makes sense for them by comparing the costs of whole life insurance against the loss of pension income available from a specific survivor benefit.

Few financial products can compare with whole life’s guarantees, security or flexibility. It’s a big reason why whole life continues to gain momentum as more Americans take stock of their personal finances and security. The continued increase in sales underscores that whole life is quickly becoming the cornerstone for many Americans’ financial foundations.

 

More from MassMutual

Whole Life for Whole Life Protection

Generation Shocked

Business Growth through Benefits Education

 

Jonathan Shuman leads sales of workplace benefits for Massachusetts Mutual Life Insurance Co. (MassMutual).

1Life Insurance Ownership in Focus, 2016 LIMRA Ownership Study, https://www.limra.com/Research/Abstracts/PDF/2016/161110-03.pdf?research_id=10737446666

2U.S Worksite Sales, Third Quarter Review, http://www.limra.com/Research/Abstracts/PDF/2016/161214-02qr.pdf?research_id=10737447367

3U.S. Retail Life Insurance Sales, Third Quarter 2016, http://www.limra.com/Research/Abstracts/PDF/2016/161128-07qr.pdf?research_id=10737446878

4Bankrate 2016 Financial Security Index, http://www.bankrate.com/finance/consumer-index/americans-still-lack-savings-despite-wage-growth.aspx

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