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Exposing the Mindset of a $40 Million-Dollar Producer
The Dazzling Dozen: A white paper, Pt. 1 By Jeffrey Reeves MA
For the past three decades or so, the number of companies offering participating cash value life insurance contracts has declined. The decline didn't occur because it's a bad product or because the companies selling it are bad companies. In fact, quite the opposite is true. Ultimately, the most respected companies in the insurance business -- even in today's economic climate -- are the mutual companies that sell highly effective participating cash value life insurance policies:
  • Northwestern Mutual
  • Massachusetts Mutual
  • New York Life
  • The Guardian Life Insurance Company
  • Numerous other companies that offer participating policies and properly funded interest-sensitive whole life, indexed universal life and other variable life insurance contracts.1
The decline was not the result of these companies' failure to promote these products to their representatives; nor did it result from the failure of other mutual companies (Metropolitan, Prudential, John Hancock and The Principal Financial Group, for example) to survive the onslaught of the EF Hutton universal life attack on the insurance industry and the A.L. Williams rape of mutual policies to extract their cash values to fund failed strategies. The E.F. Hutton and A.L. Williams misadventures, however, contributed to the problem, leading to the complete destruction of companies like Mutual Benefit Life -- one of the oldest and most respected among the old-line mutuals -- and others that failed or fell to acquisition.

No, the decline occurred because the mutual life insurance industry adopted the thinking of Wall Street in lieu of the reality of Main Street; it failed to protect its deserved and revered position as the source of advice and products that Americans could rely on as a foundation for their financial security, the bedrock of their peace of mind and the framework for their futures.

It's time to reinstate what remains of the mutual life insurance industry -- and perhaps motivate the formation of other consumer-driven insurance companies -- as the leading voice for America's financial thinking. It's time to resurrect the use of participating cash value life insurance as an essential part of every American's financial structure. It's time to drag Americans -- kicking and screaming, if necessary -- out of the uncharted financial swamp created by the failures of the universal life experiments of the '80s and '90s and back onto the solid ground that only participating cash value life insurance provides.

This white-paper series addresses twelve compelling reasons why you should place participating cash value life insurance at the foundation of your client's financial house.

I will outline both the practices such policies support and the benefits of following those practices. Do not let some shibboleth2 that participating cash value life insurance is a bad place to put money hold you back from seeing and understanding the truth. There is no other financial product that is as powerful or as flexible as participating cash value life insurance. Denying this product and its capabilities to your clients is irresponsible at best.

Reason No. 1 why you should choose to build a "money for life" economy (with cash value life insurance at its core) that lets your clients be their own bank -- a bank that lasts in good times and bad:
    Your clients can get to the money in their "bank" whenever they want or need it -- no penalties, no waiting, no taxes.
Most financial products are designed by behemoths that want to build their own portfolio of "money under management." Their reasons are easy to understand. The behemoths want to hoard as much money as possible in their own coffers; that way they can earn commissions on transactions, charge fees and hang on to profits in excess of the expected returns. Because of this, the products they sell tend to place significant restraints on a client's ability to access his or her own money without incurring penalties or waiting for some arbitrary date to arrive.

Additionally, some financial products either are or can be incorporated into "qualified" plans. That usually means your client can take a tax deduction when they put money into the plan. It also means that they can't get their money out of the plan without paying huge penalties and taxes.

Everyone experiences events in life that demand immediate access to money. For many, the money they have in qualified plans is the only money available when these events happen. The result? Penalties, taxes, and starting all over again.

There is a better way

Money held in a participating cash value life insurance contract -- the "bank" -- is easily accessible. It usually takes just a phone call to the insurance company to get a check written and in the mail -- no penalties, no waiting, no taxes. Fees are not normally associated with the transaction, and clients can usually replace the money they take out without penalty and without compromising the integrity of their policy.

Here's an example from my own experience. My daughter turned 16 (guess where this is going) and got her driver's license. A few months later she was allowed to drive my brand-new Oldsmobile to school for the first time. A ditch, two fences and a concrete birdbath later, I was staring at more than $7,000 in damage, a $1,000 deductible and a $1,230 per-year insurance premium increase. Thank goodness I had cash value life insurance from which I could borrow the money quickly to solve that part of the problem.

Reason No. 2
    The government, employers, or any other outsiders have nothing to say about how someone operates their "bank."
When you put your money in a commercial bank, it's subject to the whims of your bank, regulation by federal and state banking agencies, and income taxation by the federal government and probably by the state, county and local governments. Your money is secured only by a highly touted, but quite limited, guarantee. If you put your money in a certificate of deposit or some other banking instrument, you subject yourself to penalties and withdrawal limitations. If you wish to access your money, you have to relinquish its earning potential.

Mutual funds, stocks and bonds and other securities are regulated by the SEC. The registered reps who sell these investments are subject to further regulation by FINRA (formerly the NASD). These regulations determine what investments you can present to clients and even the words you can use when discussing these offerings. Gains from these investments are subject to a complex set of tax rules that keep attorneys and accountants in spending money. Turning an investment into money is not always an easy or pleasant task, especially when the investment is worth less than you paid for it. Taxation, regulation, limited access to your money -- it's a mess.

State insurance departments regulate and control how cash value life insurance policies are issued and how agents are licensed. The federal government and other regulators do not have any jurisdiction. This decentralized regulation allows for local oversight and better control; therefore, the money your client deposits into a traditional cash value life insurance policy is not subject to the same limitations or cumbersome regulations as investments. Moreover, it is often better protected by state insurance funds than money in the bank or in an investment.

The growth within a traditional cash value life insurance policy is not taxed. Dividends from participating policies are paid into the policy tax free, and once paid into the policy become a permanent part of the policy. In addition, the money put in to a traditional cash value life insurance policy, including any dividends that are paid in, continues to grow tax free as long as it remains in the policy.

Finally, your client -- and your client alone -- decides when and how they want to take money out of the policy and the terms upon which they wish to redeposit that money. Once a policy is issued, not even the insurance company that issues a traditional cash value life insurance policy can tell the owner how to manage it beyond the terms spelled out in the policy.

Reason No. 3
    Your client's "bank" is protected from creditors and lawsuits. [1]
Every asset your client owns is at risk in a lawsuit -- especially a lawsuit that involves creditors. Some assets may not be directly at risk, but if they are unable to protect all of their assets, the ones they can protect end up having to work a lot harder to support their needs and wants.

One of the fundamental tenets of good planning is to make certain that your client's money structures can handle the planned and the unexpected events in his or her life. If he or she became disabled or were involved in an accident that they caused, he or she might find everything they own at risk.

Having a substantial amount of money in cash value life insurance offers a level of protection that cannot be found elsewhere.

Having said that, it is imperative to involve competent legal and accounting advisors in the financial decision-making process; not because they are expert in helping you choose insurance or investment products -- they typically are not -- but to assure your clients that they are taking maximum advantage of the available legal and tax protections.

It's important to note that the best-practice guidelines for each professional specialty clearly delineate the roles of the advisor in that specialty; attorneys deal in law, accountants in taxation, registered reps in investments and insurance professionals in risk management.

Stay tuned for Part 2 of this white-paper series for more compelling reasons why you should place participating cash value life insurance at the foundation of your client's financial house.

*For further information, or to contact this author, please leave a comment and your e-mail address in the forum below.

1The 2001 CSO mortality tables allow insurance companies to create state of the art UL, Indexed UL, and Interest Sensitive Whole Life products that were unavailable even one year ago. Many of these next generation products will serve well as cash value accumulation vehicles and will incorporate flexible borrowing to compete with the more traditional and proven participating whole life policies. As these new products are just now being released into the market, are unlike previous products in many ways and have been untested over time they are not included in this discussion nor are they excluded as possible vehicles for the consumer to use in this application. Competent Money for Life advisors may recommend and illustrate these state of the art products and their advice and counsel should be seriously considered.

2A shibboleth is a statement in support of an untruth that is held to be true simply because it has been repeated so many times. In 1492 the untested and unproven belief that the world was flat was a shibboleth.

[1] This document does not provide legal advice. Protections are not the same in every state and may not be available in some states. Consult an attorney about the laws in your state.