The world of the twenty-somethings and thirty-somethings is a far different world than the one that was inhabited by the baby boom generation. The current generation of young professional women (and men for that matter) grew up multi-tasking everything. This generation can download music on their iPad, while talking on their iPhone and skimming through Facebook on their laptop, all the while watching “House Hunters International” on HGTV. They don’t own “landline” phones – why would they? It is not a multi-tasking technology.
Furthermore, our average multi-tasking American woman is expected to earn more than the average American man by 2028. She controls more than 60 percent of all personal wealth in the United States. She is financially conservative, is likely to use personal resources such as financial planners, views wealth as protection and (here is the great part), believes strongly in the value of life insurance, according to LIMRA research. This seems like a match made in heaven: young professional women with good incomes who believe in the value of life insurance. How do you make the connection to this potentially lucrative market?
“This is not your father’s – or mother’s – life insurance.” This generation grew up with parents who (hopefully) bought life insurance to protect their families in the event of an untimely death. If the kids were paying attention (and that may be a stretch), they knew that their parents owned (probably) term life insurance that would pay a lump sum if mom or dad died. The mortgage would be paid and they would go to college. Life, at least financially, would go on. But these young women may not yet be parents or even be married for that matter – so where does life insurance fit in their lives?
“The crash of 2008 scared me to death.” It scared us all. These young women weathered the storm of 2008 and now they know that the putting all their financial eggs in the stock market probably is not the best idea. They saw their parents and older friends take huge hits on their stock portfolios and 401(k) plans. They saw housing prices erode and jobs lost. They want assurances that if they start saving now they won’t lose it later. Thus, the case for permanent life insurance as an asset class.
Below is a short reminder on how the stock market has performed since 1996 and what these women have seen.
Selling permanent life insurance as an asset class in a low-interest rate environment, coupled with a relatively volatile stock market, makes sense. It is a great way for a young professional to diversify her investment portfolio. Because the risk of payment is shifted to the insurance carrier, young professional women can make other, more aggressive investment choices with their other assets.
Certain types of permanent life insurance, such as whole life and certain types of universal life (obviously not variable universal life or most indexed universal life) are uncorrelated to the stock market. It is a “general account product” and for most, if not all, carriers this means the underlying assets are invested in vehicles other than the stock market. One major carrier, for example, invests in “alternative assets.” Their approach, they state, can lead to higher risk adjusted returns and avoids riskier fixed income strategies. They invest in assets that are an alternative to public equities and have strong historical returns. One asset, her permanent life insurance policy, has a wealth of diversification behind it.
Another carrier’s whole life product has a cash surrender value that is equal to the premiums beginning in year three. Couple that with the ability to earn dividends in the product and you have a strong case for owning this carrier’s whole life product as an investment asset. Another carrier has an innovative indexed universal life product that is tied to U.S. treasury bonds. This is a super option for diversifying an investment portfolio.
“Do you like paying taxes?” Actually, no. Well, permanent life insurance is incredibly tax efficient. The policy’s cash values grow tax-deferred and can be accessed in a tax-favored manner. This means that our young professional will not have a taxable event unless she surrenders the policy. She can take tax-free loans up to the total premium she has paid into the policy and then take loans above this amount without incurring taxation. Thus, unlike a stock portfolio, there is no need to liquidate the asset to tap into the cash if a need arises. She can retain the asset and access cash. This feature is one of the powerful selling propositions of permanent life insurance.
“Do you really believe that Social Security is going to be there when you retire?” Probably not. So, let’s talk retirement. Starting young can make all the difference. And the younger generation is even more skeptical about Social Security than their parents – so being retirement self-sufficient is critical. They don’t believe Social Security will be there when they retire and they job hop like crazy. If Uncle Sam isn’t going to fund her retirement and the chance that she will get a gold watch after 50 years with one company isn’t in her future, a life insurance retirement plan is a fantastic savings vehicle.
Imagine that our young professional starts saving at age 25, and puts aside $3,000 a year in a tax-deferred retirement account for 10 years, and then she stops saving – completely. By the time she reaches 65, her $30,000 investment will have grown to more than $472,000, (assuming an 8 percent annual return), even though she didn’t contribute a dime beyond age 35. Now let’s say she puts off saving until age 35, and then saves $3,000 a year for 30 years. By the time she reaches 65, she will have set aside $90,000, but it will grow to only about $367,000, assuming the same 8 percent annual return. That’s a huge difference.
Enter permanent life insurance – specifically indexed universal life insurance. This type of permanent product offers upside potential, a long investment horizon and, depending on the carrier, the ability to invest in non-U.S. markets – another way for our young professional to diversify her investment portfolio. When she retires, at age 90 because this generation should live much longer than the generation before her, she can have amassed quite a nest egg in her life insurance retirement plan – which has stayed with her through various jobs, lots of kids, maybe a few husbands, aging parents, and, and, and …
Bottom line – the young professional woman is never too young for permanent life insurance.