What's the difference between term and whole life insurance?
We are currently experiencing what Yogi Berra once so aptly described as “déjà vu” all over
again. At the outset of the Baby Boom and more so during the 1950s, insurance sales were dominated
by what we refer to as “Whole Life”, or Permanent Insurance coverage. The salesman – men then
dominated the industry – came to your parent’s door, offering a lifetime insurance coverage that would
eventually be fully paid and which would accumulate a small sum of cash.
These policies tended to be for a small amount of coverage and consequently, highly affordable
for a generation that were still adjusting to a post-war boom in industrial output, and a rapid rise in
personal wealth. During this same era, the “Suburb” came to be the preferred home base for young
families and the American car was a large “land yacht” of a vehicle, preferably with long fins and plenty
What has happened to our world since then would take an encyclopedia – one more reliable
than Wikipedia – to list and explain. Suffice it to say that we have passed through several generations of
change to our lifestyle, industrial base, technology, diets and preferred forms of communication, to end
up with one foot back in the era just described.
Permanent or Whole Life policies are all the rage again. There are many factors that have lead
us to this nostalgia for what once was and not the least of which is the soon-to- be most massive transfer of wealth between generations in recorded history. Parents, those Baby Boomers, leaving an estate for their children and these same grandparents moving a portion of that great wealth to their
Another factor is certainly a better understanding of the long-term value of compound returns
on invested dollars. Specifically, in terms of the features offered by what we refer to as “Participating
Whole Life Insurance”. This product not only accumulates a cash value, much the way the popular
product of the 1950’s did, but like some of the products offered in that era, also pay an annual dividend.
The dividend is variable, currently standing at between 6% and 7%, depending on the carrier
chosen and the performance of their investment portfolios. As these policies allow us to invest a sum
over and above the basic cost of insurance, we can grow the cash values much faster and the growth of
our investment, boosted by the annual compound dividend, is tax sheltered if we leave the cash in the
These policies have many valuable features: a savings plan, tax deferral, cash availability, better-
than-average returns on investment, permanent estate protection, tax-free transfer of wealth to our
beneficiaries, and as a supplement to our pension income, through a planned cash withdrawal after our
retirement. As you can see, the Permanent Whole Life policy serves many purposes, which probably
accounts more than anything else for its current resurgence as a preferred vehicle for future security.
There is currently a short list of providers of this product, but the list is growing every day, as
providers realize how much of the current market this product serves. A child, covered from birth by one
of these policies, will require no proof of health to maintain the coverage going forward and with a
guaranteed insurability clause, will be insurable for ever-increasing coverage in the future, without ever
having to prove their health for qualifying. This feature makes the gift of one of these to a child or
grandchild one of the most thoughtful one can provide.
As a child’s policy grows in cash value, the funds are available to the owner of the policy –
usually mom or dad, or both – for the child’s education or any other purpose they deem worthy. Or,
when the child reaches the age of majority, the parent(s) can turn over ownership of the policy to the
insured child, with the signing of a simple transfer form. The fact that the coverage is permanent and
that the cash is always available to the owner of the policy may well be the leg-up that the child – now a
young adult – needs to launch a career, finish his/her education, start a business or take a well-deserved
holiday, after a couple of decades of schooling.
To bolster your confidence in this product’s performance, suffice it to say that one of the
premium suppliers of this coverage has been giving out a dividend – once as high as 12% - for over one-
hundred-and- ninety years. It is possible if not guaranteed the dividend will increase again in the coming
years, as the world economy peaks in performance, based on some highly influential factors, such as a
spike in technological development and the expected explosion in the renewable energy sector.
The insurers have expressed a confidence in their ability to maintain dividends that will outpace
savings accounts and GIC’s. Let us show you how these products can benefit your needs.