My Personal Account of Whole Life Insurance
I was unknowingly introduced to the value of life insurance when I was about one month old. My father, Larry Marr, a Chartered Accountant at the time, purchased a life insurance policy on my behalf from North American Life.
Wisely (in my opinion), he had already purchased policies for my two older brothers.
My brothers – one a successful Lawyer and the other an equally successful Journalist – did develop some health challenges down the road and these Whole Life policies, which included an enhanced protection feature, formed the foundations of our insurance policies.
We were also rewarded when North American Life was purchased by Manulife. The amalgamation was effective on January 1, 1996, making Manulife the largest life insurer in Canada. A few years later, in 1999 demutualization was approved by policyholders, converting Manulife from a mutual life insurance company to an investor-owned, publicly-traded stock company. Shares in Manulife Financial Corporation begin trading later that year on the TSX, NYSE, SEHK, and PSE.
The transition didn’t go as smoothly as planned. U.S. investors rejected the proposed introductory price of $20 to $23 per share. Not allowing this minor hitch to deter their plans, Manulife jumped into the market at an even $18. My brothers and I each received shares that were more than double the value of the premiums we had put in and we still maintained all of the policy benefits. A pretty sweet deal!
Manulife’s president Domenic D’Alessandro wasn’t disappointed either, “Today’s price is not a bad price at all. If one looks at the price in relation to other indicators like book value or earnings, the price is very acceptable.”
Many Financial Experts have different opinions on Children’s Life Insurance.
Melissa Leong, personal finance writer for the Financial Post and resident money expert on CTV’s The Social, reached out to my wife Chantal on the subject.
Chantal’s take, “Yes, I’m a big believer in life insurance for children. I have life insurance on each of my three children. It allows them to have coverage which is locked in at an affordable rate regardless if they have a change in health down the road. This can be particularly advantageous if the child’s parents have health issues that are hereditary.”
The other side of the argument is that the child is not the breadwinner, therefore there is no income to protect.
Ed Rempel, a certified financial planner with Armstrong & Quaile Associates Inc says, “The dumbest idea is to buy whole life insurance for your child. I’ve seen this awkward situation many times. Clients in their twenties cashing in very low return policies that were inflicted on them when they should be building wealth. Parents have many more important uses for their money, such as life and disability insurance for themselves, their retirement goals, and their child’s RESP.”
Mr. Rempel makes a valid point, however, there are many benefits to insuring a child when he is young and healthy – mainly, you can lock in a policy at low premiums. Should the worst happen, the money will allow you the time you need to properly grieve your loss, without the financial burden of funeral costs, time off work, etc.
Other reasons for buying life insurance for your children include a funding vehicle for higher education, a tax shelter for individuals in a higher tax bracket or a tax-free way to transfer wealth to children or grandchildren. There are also many ways the child can use the policy later in life. A whole life insurance policy holds cash value, which can be a great asset when the child becomes financially independent.
According to Alan Moore, founder and certified financial planner at Serenity Financial Consulting, “Life insurance can also be used to pay off debts or be part of estate planning for ultra-high net worth clients.” He adds, “Notice that a newborn doesn’t fall into any of these categories. Outside of the extremely rare case of the child supporting the family by being a child star, you simply shouldn’t buy your child life insurance.”
The Pros and Cons of Whole Life Insurance
Many people believe the advantages of whole life insurance outweigh the disadvantages, while others feel it is the other way around. Opinions on the matter vary greatly. Here are some facts to help you create an opinion of your own.
Premiums never increase no matter how long you own the policy. With no surprise increases in the future, you can plan your budget with certainty.
You can stop making payments. Most whole life policies allow you to convert the cash portion of your policy into future premium payments meaning your policy is “paid up.” You are still fully covered, you just don’t have to pay more premiums.
It is permanent insurance, valid for as long as you keep your account active and pay your premiums, not just for a certain number of years or “Term.”
Whole life insurance has a cash value portion that you use any way you like and is guaranteed to grow over time.
Policies guarantee the death benefit plus the premiums. Some types of permanent life insurance will guarantee one or the other, but not both.
Whole life insurance offers a wide range of living benefits.
When you cancel your whole life insurance policy, the cash value portion is returned to you, giving you something to show for all those years of paying premiums.
The cash value portion of your whole life policy is an asset and like any other asset, you can use it as collateral, withdraw it or let it grow.
Whole life insurance is complex – this could also be a pro since the complexity of the policy is what makes it unique to each person. Whole life is not a “one-size fits all” type of insurance. Everyone has a different plan for how the policy will be used or reason for the purchase. Because the policy is actually yours, not just “rented” protection, you have many more choices and options that allow you to tailor the policy to meet your specific needs.
Whole life insurance is very expensive. That is why it is important to buy a policy as soon as possible. Once your premiums are locked in, they will never increase, making a whole life policy much cheaper in the long run than term insurance, which increases dramatically the older you get.
Other investments provide greater returns. The higher the risk, the greater the return (or potential loss). There is no risk in whole life insurance, so the returns may be a bit lower, but growth is guaranteed.