insurance

Best Bets for Whole Life Insurance

Make sure you buy from a reputable company when you need coverage to last a lifetime.

In the June issue of Kiplinger's Personal Finance magazine, Kim Lankford writes that fifty- and sixtysomethings should consider buying permanent life insurance rather than term life insurance if they still need coverage. A permanent cash-value policy, such as whole life, provides a safe place for savings, portfolio diversification, an instant line of credit and tax-free money to pay expenses after your death (see Life Insurance After 50).

If you're buying whole life insurance, you're looking for coverage for the rest of your life. So you want to make sure you get a policy from a company that will be around for a while. To make sure you're getting coverage from the best, consider these recommendations from the June issue of Kiplinger's Personal Finance:

For whole life, a mutual company is usually your best bet. As a policyholder, or member, of a mutual, your cash value earns dividends because you “participate” in the company’s investment gains and skill (or luck) in selecting risks. The big mutual companies, such as Guardian, MassMutual, New York Life and Northwestern Mutual, specialize in whole life insurance and have top credit ratings. Some former mutuals, such as MetLife and Prudential, still sell dividend-paying policies by setting aside a special reserve to pay dividends.

As with any other investment, past performance is no guarantee of future results. But the way that many people compare insurance offerings -- by looking at hypothetical projections of cash values ten, 20 and 30 years ahead -- doesn’t make sense because these projections (known as illustrations) are not guaranteed. Insurers have been known to issue inflated illustrations based on impossibly optimistic projections -- and fail to deliver.

Roger Blease, a pioneering insurance analyst who runs Blease Research, in Easton, Pa., says a better idea is to go back and look at similar whole life policies from different insurers to see how the total premiums paid have translated into today’s accumulated cash values. (He assumes the dividends are reinvested.) Here are Blease’s rankings of national companies over the past 20 years, with the annual rates of return for a policy sold in 1991 to a man who was 55 years old that year:

Northwestern Mutual, 4.44%
--New York Life, 3.37%
--Thrivent, 3.20%
--MassMutual, 3.01%
--The Guardian, 2.62%

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