Retirement Planning

The Miracle of Life Insurance

Life insurance is an amazing invention. It truly is a miracle, and here’s why.

Life insurance is the only financial instrument I know of where, with a few strokes of a pen and a few pennies per thousand dollars of death benefit, you can create an estate immediately. Once that foundation is in place, you can reinforce that estate by accumulating assets, with other instruments as well.

Dr. Solomon Huebner first wrote about “the miracle of life insurance” in his 1927 book, The Economics of Life Insurance. To him, life insurance was a miracle financial product created to help people protect against dying too soon, living too long, or becoming disabled. While life insurance is best known for its death protection benefits, the cash value accumulated in permanent life insurance can be used to fund an annuity to provide an income stream no longer how long someone lives. Life insurance can also help when someone becomes disabled.

Life insurance as a personal miracle

While the cash value of a life insurance policy is not FDIC-insured like a bank account, life insurance can be an excellent way to build savings. In fact, in a whole life product, depending on the age and the type of whole life product, after you pay the first two or three years of premiums, the cash value and the estimated dividend can be more than the premiums that you will pay for the rest of your life if you keep that contract in force.

People like to talk about investments, at a cocktail party or some other social gathering. The stock market can be an amazing long-term investment for wealth building, but I find it fascinating that people only talk about their successes. They never talk about the investments that didn’t quite pan out. Instead, they might do well to consider using life insurance as an investment vehicle that is not tied to the ups and downs of the stock market. The cash value of a life insurance policy provides a foundation, so that if other investments crash in value, there is still money that can be drawn on.

I had a client who made extensive use of this strategy. I started working with him when he had a small machine shop, which he grew into a good-sized company. Over the years, he owned a substantial amount of life insurance. Every year I did an annual review with him, and about every two years there were needs in his life that had changed — more kids, more grandkids, bequests to charity — and he would buy more life insurance to take care of those contingencies. He had five kids, and then his family grew further with 16 grandchildren. He also had a lot invested in the stock market. Every August, I’d get a call from him saying he need so many thousands of dollars from his life insurance for school tuition. I was kidding around with him one time, and I asked him why he didn’t use the money from those wonderful stock investments that he had. “For Pete’s sake,” he told me. “The stock market’s down, and if I had to do that, I’d lose money. Will you send me the money?” Of course I sent it. Then later, when the timing was right on his investments, he could pay back the money to his life insurance.

Life insurance as a business miracle

We talk about life insurance as a personal tool, but it can also be an important tool for companies. Many, many years ago, my associates and I had called on a company that was undergoing a growth spurt. Three engineers had broken off from the company they worked for and started their own chip manufacturing company, which was becoming one of the more successful companies in that industry. All three of the guys were about the same age — one was the Chief Financial Officer (CFO), the other managed production, and the third ran sales, but they were all engineers and they made a great trio.

When we started working with them, we sold all of them term insurance to cover premature death for their families and the business. As time went on and the company became more successful, we took on their pension plan and their group insurance, and they added a substantial amount of life insurance, both from a personal and a company standpoint.

We were on a fishing trip together, something we did every year, talking about when we wanted to go fishing next year, because it was always difficult to get everyone’s schedules to line up. One of the partners said that he probably wouldn’t be able to go fishing next year. His other partners chided him about becoming too snooty to go fishing with them, but then he went very silent and finally spoke, “No, you’re the only ones I’ll tell this to. I’ve told my wife and of course my doctors, but I have Hodgkin’s, so I probably won’t be here next year.” In those days, they really didn’t have much of a cure for Hodgkin’s. In a year and a half, he was dead.

At that time, the computer chip business had gone downhill and the company was having a very difficult time. The insurance paid out a considerable amount of money in death benefits to the corporation as key manager. That money enabled the company to get back on its feet again. We received a wonderful letter from the two surviving partners, saying that they probably could not have continued the company had it not been for the life insurance.

About four or five years later, the CFO of this company was playing golf at the local country club — I had a friend that was playing golf with him that day so I know this for a fact — and he fell over dead while taking his backswing on the first tee. Same situation: The computer business was struggling, and we got another letter from the surviving partner, who was able to continue the company, which was later sold. The company still exists today, but I don’t think the company would have been able to weather the difficulties had it not been for the miracle of life insurance.

What got me into the life insurance business

I’ve had a really great career in the life insurance business, and tough personal experience taught me how important life insurance can be. I was just coming out of the Air Force, and the Air Force in its wisdom had kept me from flying, making me a personal affairs officer. I didn’t even know what a personal affairs officer did, but I soon learned it was about taking care of the benefits of service people who had died. There weren’t really many benefits.

The Air Force was phasing in a new jet bomber, the B47, and the senior officers were the ones that had the opportunity to fly. The B47 was a hot airplane, a big kerosene can with miles and miles of wires; whenever there was a short, the airplane would explode, and I don’t think anybody ever got out of it. We had a wonderful guy, that I’d flown with, who was a full Bird Colonel. He went up flying one day and the plane exploded. The chaplain and I went out to see his wife, and we caught her as she and her five kids were getting off the train from having visited her mother in Chicago. It was one of the hardest things I ever did.

He had $20,000 of GI insurance and $10,000 in commercial insurance, which wasn’t very much for that sized family, even in 1952. One of the last times that the chaplain and I met with Mary, she broke down and cried. Even if she worked, she would only be able to keep two of the kids. The other three were to be farmed out around the family. Two of her cousins were each going to take one. The family was decimated.

On the way back to the base after that last conversation, the chaplain and I stopped and had a cup of coffee. He asked me what I was going to do when I got out. I told him I wanted to be in sales and that the bureaucracy wasn’t for me. “Well, you’re going to sell life insurance, aren’t you?” he asked. I told him I didn’t understand where he was coming from. And he said, “Let me ask you a question. If you had walked in to our conversation with Mary tonight with a life insurance check for $100,000, do you think she could have kept the family together?” That’s what brought me into the life insurance business.

I stayed in contact with Mary, who died about five years ago. It was a tragic situation, watching her trying to raise the two kids while maintaining a relationship with the other three. It’s heartbreaking to see so many situations where, with a reasonable amount of life insurance, the families would be able to stay together and control their own futures. That is the miracle of life insurance.

Dr. Huebner once said that when you own life insurance for the people you love and the companies that you’ve built, you’re buying peace of mind, no matter what happens. That’s really what it amounts to. You’re buying peace of mind because you know that you have adequately protected against the situations that might occur either immediately or in the long range, and you can go ahead and spend the rest of your money as you like.

Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values. Loans and other policy withdrawals may be taxable under certain circumstances.

This post is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this presentation may not be appropriate for your situation. The information in this material is not intended as tax or legal advice. Always consult your legal or tax professionals for specific information regarding your individual situation.

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