Life Insurance & Levers

How many levers are attached to your life insurance policy?


I prefer to own a permanent, whole life insurance policy where the insurance company has control over one lever.  Most policies that are sold today have multiple levers that are unfortunately controlled by the insurance company.  They might be insurance policies which are called universal life.  They may go under names of flexible premium life, or flexible premium adjustable life.  There might be multi-funded universal life-type policies that invest the cash value into the stock market.  There could be index, fixed index policies that also invest in the market that had these mathematical calculations on how much of the market you may get on the upside, and how little of the market you may receive on the down side.  What there are with many of these policies are multiple levers that the insurance company controls.  They can control how much in the future you may need to spend to keep the policy in force.  They may control the lever as far as the administration costs.  How much do they charge now?  How much they can charge in the future?  There may be an internal cost for the actual insurance to ensure your life against death.  There is a current amount that they can charge you, which comes out of the policy on a regular basis, but there is also a contractual amount as far as how much they can charge in the future, which again is a contractual amount that very few people ever delve into the policy to figure out what those costs might be.  Then there are calculations, as far as if it is invested in the market, who chooses what that investment might be?  How do you decide the risk and reward, and do you want something that, like insurance, that you want certainty that all of the sudden, is invested in something that is uncertain?  And what are the guarantees?  How does that affect the lifetime of owning that insurance policy?  Could it cause the insurance policy to self-destruct?  How is that lever controlled?  How are the levers controlled as far as increasing or decreasing the amount of insurance that you have in the future?


There are all these levers, and there are levers that the insurance company controls, whether it’s an interest rate that they might be declaring.  Who controls the interest rate?  Who controls the mortality costs?  Who controls the monthly expense?  Who controls the expense ratios inside the investment inside the life insurance company?  How does that change?  Do the investments change from one company to another who are providing the investment regarding underlying investments that might be inside the policy?  There are multiple levers.  Who is in charge of those?  The insurance company, not you. 


This is why I like something that has contract guarantees.  I want something that has one lever, and I want that lever to actually be a benefit to me.  This is why I like for permanent insurance, for it to be whole life insurance, which means that it has the opportunity to remain in effect ‘til my death, or until age 121, whatever happens first.  I want a guarantee that will last my entire lifetime.  I want a guarantee that my premium will never ever go up.  I want a guarantee that my guaranteed cash value, the reserves inside the policy continue to increase and will actually endow, which means whatever life insurance I began on day one, I’m guaranteed to have that amount guaranteed inside my policy at the date of my death, or at age 121, I’m guaranteed to have that amount.  The only thing that the insurance company controls is the lever of additional profitability in the vent a dividend is declared, and most mutual insurance companies have declared dividends for well over 100 years.


So, here’s the lever that they control, if there’s excess money because they are a mutual company, and you are considered to be an owner of a mutual company, very similar to a credit union is in the banking world, if they have a profit, they have to pay it back to you.  So, you have all these guarantees, and the only lever that a mutual life insurance company controls is the lever to give you more.  What kind of permanent life insurance do you own?  The one that has one lever to give you more, or the kind that has multiple levers to give you more uncertainty and more unknowns?

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