The Best Kept Secret

Whole Life Insurance — an Asset in Your Portfolio

Addressing protection, retirement, investment, and estate planning needs.

We always knew whole life was good for your family. Now we know it can be good for your portfolio, too.

Give your loved ones income protection, and more. People buy whole life insurance for a whole lot of reasons—mostly for the peace of mind and financial security the death benefit provides. But, as a recent study found, whole life insurance has a unique combination of benefits that protects your family, and supports your portfolio, at the same time.

Enjoy cash value growth—with less risk to your portfolio. While we have long believed that the guaranteed cash value⁽¹⁾ and dividend potential⁽²⁾ of whole life insurance can benefit a portfolio, we commissioned Morningstar Investment Management to test our theory. They compared two model portfolios—one with a 50–50 mix of stocks and traditional fixed income investments (such as bonds or bond funds), and one that replaced 20% of the fixed income investments with whole life insurance. Here’s what they found.

Morningstar tested it—and confirmed it. The Morningstar study found that the portfolio with whole life generated almost the same potential return as the portfolio without it, but because the cash value accumulation grew more steadily than the fixed income investments (which rose and fell with market conditions), the risk/volatility was significantly lower.⁽³⁾ Plus, the cash value accumulated tax-deferred, which tipped the scale even further in whole life’s direction. Please see footnote 4 for assumptions related to the data. Results for any individual may vary significantly.⁽⁴⁾

The more life you add, the less risk potential you get. So what happened when Morningstar adjusted the portfolio mix and added even more whole life to the equation? As you can see from the following table, the return was only minimally affected, while the overall portfolio risk was reduced by .27 basis points when whole life replaced 20% of the fixed income portion of the portfolio, and .43% when it replaced 40% of the portfolio.

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⁽¹⁾ Guarantees are based on the claims-paying ability of the issuer.
⁽²⁾ Dividends are not guaranteed, but have been paid for 163 consecutive years.
⁽³⁾ The return for the whole life policy in this context is a measure of the interest rate at which the net present value of the premiums paid equals the net present value of the cash value, over a given period of time. The risk of the cash value of a whole life policy is the percentage variation between the projected and realized cash surrender values on an annual basis. A higher risk percentage indicates greater volatility. The risk of the equity and fixed income indexes represents the percentage variation in price changes for the securities making up the indexes.
(4) These results were based on an evaluation of the realized dividends and cash surrender values of a whole life policy issued 1/1/82–12/31/16 (35-year-old male, $250,000 face amount, best risk class rating, annualpremium of $3,585) and the historical results of the S&P 500 and Bloomberg Barclays US Aggregate Bond Index. The indexes are unmanaged broad-based indicators of the U.S. stock and bond markets. Past results of the policy and the indexes are no indication of future results. Index results have been reduced to reflect Morningstar’s estimate of taxes and investment management fees. Pricing and underwriting factors have changed significantly since 1982, which can affect the results.