Compare Two Types Of Whole Life Insurance...

October 23rd, 2008

An advisor submitted the following comment in response to a recent article by Dr Agon Fly that appeared on ProducersWeb, a financial industry forum. I believe it could be useful for anyone interested in understanding life insurance policies and - more importantly - interested in securing their future.

The ProducersWeb reader wrote:

"What about U.S. Treasury decision 1743 that states that a dividend from a life insurance policy is nothing more than a return of a deliberate overcharge of premium imposed by mutual company?"

I've been unable to track down the reference made in your comment. It is true that the IRS considers dividends paid from a mutual company to policy owners a return of unneeded premium. Your use of inflammatory terms like "nothing more" and "deliberate overcharge," and "imposed" are, however, off base [at best].

Let's add some perspective. If a mutual company and a stock company both offer whole life contracts, have the same or similar mortality charges, administrative costs, reserve requirements and guaranteed cash value commitments, the cost of the policies would be about the same for both insurers.

However, the stock company with the non-par policy would also charge more than their base costs to make sure they made a profit to propel the business. It would also have to charge some excess premium to pay taxable stock dividends to their shareholders. You, as the policy owner would, therefore, be paying "nothing more than a deliberate overcharge imposed by the insurer" and receiving nothing in return for having paid the excess.

The mutual company would also charge extra premium to propel its business for the benefit of its policy owners [as opposed to outside investors] and, unlike the stock company, would return that extra premium to the policy owners as a tax-free dividend.

Which would I prefer? I'd rather reinvest the return of the "overcharge" in my policy than pay it to an outside shareholder.

I hope this adds a bit of perspective. Many advisors across America recognize participating cash value whole life insurance as the most versatile, flexible and powerful financial tool available to Americans who want to...

• gain control of the money that flows through their lives,

• become free from debt-to-others,

• secure an income protected from inflation and that they cannot outlive,

• assure ready cash for life's surprisingly unsurprising surprises, and

• create a legacy of both wisdom and wealth to pay forward to those they care most about.

These advisors study and understand every form of life insurance available in the market today. They do not disparage any of them since each may have a place in an individual client's personal economy.

These advisors believe that it is every professional advisor's duty and responsibility to know and fully understand all of the financial products that may be available to their clients. How else could they make honest recommendations?