Most of the folks reaching adulthood in the past 15 years are living in a world that accepts debt as a fact of life. A recent post by Nerd Wallet titled, “American Household Credit Card Debt Statistics: 2015,” indicates that the average American shoulders a debt of approximately $263,000. Other studies vary, but mortgages, vehicle loans, credit cards and student loan debt all contribute to the crushing debt young people find themselves in when starting a new career, getting married and raising a family. Further, only 20 percent of Americans are free from any debt. I certainly cannot boast that I’m in that group.
The bright side to all this talk about debt is that Gen-Xers and Millennials seem to be getting the message. Fewer people in these age groups are taking on additional debt in the form of credit cards. Many young adults grew up in a household hindered by debt, and that experience profoundly impacted their perception and financial planning, or lack thereof.
Still, when the discussion of cash value life insurance comes up, most people do not understand how such a product works. For those who do not have a savings program within their financial plan, this spend for today, save for later ideology hinders the ability to tolerate cash values kept in a whole life product.
Most of us have been programmed to prefer any life insurance product to be in the form of a term product. Financial gurus espouse the strategy of buying cheap term insurance, and using the savings for a solid financial plan. Moreover, whole life is portrayed to be the boogey man of insurance, where insurers keep the lion’s share of the interest made in the whole life contract. The fact is that few exhibit the financial discipline to save for the future, and our whole life plans offer growth and member benefits that commercial companies may not provide.
When our members contact us to surrender their whole life certificates, they usually give us one of two reasons for doing so. The first is because they want the cash value. The second is because they have group coverage through work. For these reasons, they perceive that the whole life plan is no longer needed.
Surrendering for cash value may infuse a bit of funding for immediate needs, but it negates years of interest growth necessary to support the plan, and the eventual need for the death benefit. This thinking is short-sighted at best and careless at worst.
Term life is a great way to obtain a lot of coverage when one is young, but millions of Americans are actually outliving their life insurance coverage, being left to find coverage at an older age and in less than favorable health. The cost of term life is designed to increase with age, and will be unaffordable for most about the time retirement age looms. Group term through work is a valuable perk, but most plans are not portable or convertible . . . meaning that you can’t take it with you to another employer and it cannot be converted to a permanent product. Whole life coverage bought when young locks in the premium for the life of the product, which means that it will never increase like term does.
At Hermann Sons Life, our goal is to give our members the best value in our whole life products, while providing the great member benefits for which we are so well known. Buy it with the future in mind. Keep it for life.