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When is whole life a good fit?

By Donna Glasgow | April 26 2009 08:36PM

Whole life insurance works best for individuals who have a fixed need, Gerry Anthony, Senior Consultant, Product Development, Insurance, Retail Markets at Standard Life says.

"When you purchase a contract, let's say it is for $250,000, you know two things: You know the death benefit is going to be $250,000 and you know the premium is going to be fixed. So if you happen to have a need which is fixed and stable, it will cover that."

Meanwhile, universal life (UL) is often sold for individuals with increasing needs since it is more flexible. With UL, a policyholder can increase the amount of death benefits by making additional deposits to the contract. Whole life does not have this feature, especially non par, says Mr. Anthony.

"If you have an increasing need maybe you should be looking at universal life, but if you have a level need, then I think whole life is definitely something you should look at," he says.

Examples of fixed needs which whole life could address are charitable donations, legacies for heirs, or something as simple as burial expenses, Mr. Anthony explains.

Market meltdown

The market crisis may have increased such needs, he adds. "The product does have some traction in situations where individuals may have had a non-registered investment portfolio that they were going to use to leave to their heirs and because of the market meltdown, they are finding that that pool of capital is eroding. Now they are saying, maybe I should look at life insurance for this particular need."

Peter Wouters, Director, Tax and Estate Planning and Director of Retail Risk Product Marketing at Empire Life, provides another example. He suggests that whole life can also be bought for infants and paid off by time they're 20-years-old by choosing a 20-year payment plan.

Mr. Wouters adds that his company has a single deposit payment option available "that is pretty unique in the industry" and more commonly seen on UL side of the business. This option is geared to the more affluent. He adds that some advisors may not realize that such flexibility exists with whole life. "Take a look. You may be making assumptions about what a product can or cannot do without taking a good hard look at it."

Despite the current market conditions which are driving renewed interest in whole life insurance, Mr. Anthony says that advisors should take a long-term view of a client's needs. "If an individual has an increasing need for insurance, even in today's market, whole life may not be the right product." Instead, a client who may have increasing needs can minimally fund their UL plan "until such a time as the markets can improve and they get a better investment," he suggests.

Mr. Wouters also advises taking a long-term view. "Companies have designed targeted products for targeted needs and targeted objectives. Typically you would buy term insurance for short and medium term needs and coverage...You generally buy universal life insurance for flexibility, control and mid-term performance and you would generally buy permanent participating insurance if you are looking for stability, guarantees and long-term performance."

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