Life Insurance and Retirement - The Unvarnished Truth

Chapter 1

The Insurance Authors' Dilemma

Having spent over 45 years in the life insurance business, I had become frustrated with the books that I had been reading that promote permanent life insurance in a manner that I considered exaggerated or flawed. I shared my frustration with several people who responded by challenging me to write a response that says what should have been said by these other authors.

Upon accepting the challenge, I asked a group of my friends to give me their thoughts on life insurance. What follows is the not so surprising e-mail from one of the women in this group. "I probably won't be of much help to you, but this is how I feel about insurance: I have no life insurance and don't want any. I have selected my 'hole-in-the-ground' and paid for it. I don't understand term or whole life, and at this point, I don't want to learn. When I was young I might have been interested in hearing about it, but I couldn't have paid for it."

Then she said, "Regarding insurance, I think you're damned if you do and damned if you don't. I hate it - or at least, the idea. I also think most insurance salespersons will say whatever it takes to sell a policy." I can say that the above quotes are not at all unusual. Add to that there are many who call themselves experts, who say that life insurance is a terrible investment, that you will do better simply by putting the premiums into the bank.

Because of these widely held views, in my opinion, in their attempts to overcome people's hesitancy to purchase anything from life insurance companies, the authors of these books, to one degree or another, have erred. Add to this the fact that insurance company illustrations have become more cautious, while the books, illustrations remain based on out - dated information. These relatively popular books have good points. Nevertheless , each has fallen short. In some cases this may have been intentional. I prefer to believe that what was written (or not written) was usually the result of naiveté or lack of knowledge.

My problem with most of these books is that while the motivation has been to get people to buy sufficient amounts of life insurance, which is reasonable, the authors have either made exaggerations, or they have used the wrong type of policy for their purposes. However, the previous quotes might give us an idea of what driv es these authors. It isn't that they are trying to deceive the readers. They are struggling with human nature.

I have come to realize that, as a general economic principle, one could describe people as either net producers or net consumers. At differe nt times in our lives we may be one or the other. At birth we are consumers, and that is usually reinforced during most of our formative years.

Toward the end of our lives we again become (or we have hoped to become) consumers. In between as responsible people we need to be net producers. For most of us this is difficult, because we became accustomed to being provided for. Because of this, saving for future needs or wants has been of low priority.

Our government has responded to the truth of this by establishing programs to counter our innate self-centered approach to financial decisions. Because we have a tendency to consume all that we produce, (and with the advent of credit cards, more than we have produced) we have been forced to set aside part of what we earn for our families in the event of death or disability, and for ourselves if we should make it to the age of retirement. For most of us, this is Social Security.

Social Security is not enough, so our representatives created tax incentives to encourage us to save part of our productivity by means of Individual Retirement Accounts and 401(k)s. On top of these, the United States Department of Labor has determined, that when one retires, if he or she is married and has a pension, this pension is to be reduced to allow for the spouse to still receive a portion of what was created before retirement, after the death of the retiree. (From this point on I will use the masculine gender as inclusive of the feminine. It is too tedious to continually say 'he and she' or vice versa.)

I believe it is our nature to consume, rather than to conserve what we produce. This is who we are. This is the number one issue insurance ag ents have to compete with. The insurance industry's task is to find a way, a story, that will convince each of us to deny our basic nature, and move us to discipline ourselves to do that which is best for ourselves, our families, and ultimately for the common good.

When someone says of himself, "My death is more costly than the purchase of a hole in the ground," he is acknowledging that he is a producer. The job of the insurance agent is to help that person to determine just how much his worth as a producer is, and inspire him to assure those who depend on him that they will never have to be without his productivity. It is one thing to get a person to see his worth. It is quite another to get him to do something about protecting that worth. This, I believe, is why these authors are prone to over - sell the ir insurance products.

The fact that you have acquired this report suggests that you may have decided to do something about your financial future. It may be that you have read Tax - Free Retirement by Patrick Kelly, or Douglas Andrew's Missed Fortune and The Last Chance Millionaire, or Pamela Yellen's Bank on Yourself. I encourage your reading of these books. I have read them, and I have found their basic concepts are sound. I am grateful for their contributions in helping the general public understand principles that have been widely shared within the community of professional life insurance agents.

Whatever it is that has gotten you this far, my goal is to get to the facts without the hype, so you, in dealing with an insurance agent, can feel confident in what you decide to do. I will attempt to explain what each idea is in easy to understand terms. I will include warnings where necessary. I will create comparative illustrations in order to give you an idea of how these products work.

I will include instructions for how to determine how much insurance your family will need. I will describe various retirement alternatives besides life insurance that may be suitable. When helpful, I will provide internet resources that you can use to determine what you need to do. What I will not do is fill this book with a lot of anecdotes designed to browbeat you into buying life insurance. I believe that you are r eading this book because you have already decided to be a conscientious net producer, who sees the value of protecting that productivity.

Chapter 2

Safety in Numbers

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