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  • Kevin McCollester

The "L" word

Updated: Oct 16, 2019

When it comes to personal financial planning, we don't like to use the "L" word. This is true whether we are providers (planners) or consumers. The "L" word has gotten such a bad rap in the media and by financial planners alike, that by nature we just don't want to talk about it.

What IS the "L" word? Life Insurance.

There, I said it.

At one point or another, we begrudgingly acknowledge that we need life insurance. I mean what's in it for me? Right? The only time it's going to pay is when I die, and I hope I won't die any time soon, and besides, I won't see any benefit from it. Others will, and that's the point, and so we hold our nose and buy it. And we tend to look for a policy that will provide the death benefit for the lowest price. Nothing necessarily wrong with shopping for a product with the lowest price, that's typically what we always like to do, but that way of thinking ALWAYS leads to buying a term policy for the shortest length that we think we can justify - until the kids get out of college, or until the mortgage is paid off. This will result in the lowest premiums for the shortest period of time. I mean, why pay a lot for something you hope you never need?

If you happen to ask for advice when looking for life insurance, you will likely find "experienced professionals" recommending the same approach. The thinking is that you only "need" life insurance for a relatively short period of time, and besides, after that it becomes way too expensive to own. Makes sense ...

But what if we actually took some time to look into the various types of life insurance available and think about this decision a bit differently.

Term - "Use it or lose it". That's basically it. You pay premiums for a certain "term" that insures you against death. If you don't die while you are insured, then you have "lost" all of the money you spent buying it, and you have lost insurance coverage.

Permanent - There are two types of permanent insurance; Whole Life and Universal Life, although Universal Life comes in three basic "flavors"; Standard Universal, Indexed Universal, and Variable Universal. The idea behind Permanent insurance is that as long as you make premium payments, or have built up sufficient cash value in the policy, you will be insured for as long as you live.

Without going into a lot of details on why you should consider permanent life insurance, in this blog post I will just let others do the talking for me.

Exhibit 1 - JP Morgan Chase. Click on the link to see a financial statement listing assets and liabilities for the bank. On line 41, you will see a line for "Life Insurance assets". Note this is considered an "asset", not a liability. This number (in thousands), represents the cash value of all forms of permanent life insurance policies owned by the bank. This is typically life insurance policies owned on key employees for the benefit of the bank, not for the heirs of the employee. For JP Morgan, this is over $11 Billion dollars!!

And JP Morgan is not alone.

Exhibit 2 - Bank of America - over $22 Billion!!

Exhibit 3 - Wells Fargo - over $18 Billion!!

Exhibit 4 - University of Michigan football coach Jim Harbaugh's compensation package. This is a very interesting article that says "what most people don't know, however, is that the compensation strategy was designed to provide Harbaugh with millions of dollars of tax-free cash during retirement." Did you catch that? Tax-free retirement income! From life insurance!!

If the largest banks in the country, and the highest paid college football coach in America own permanent life insurance, maybe you should too.

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