Those clients who hire investment managers typically hold large amounts of life insurance "funded with capital rather than budgeted income," Weber says. Choosing the correct investment to use for premium payment is an asset allocation decision.
Finally, he argues, permanent life insurance within a portfolio of equity and fixed investments can produce a return that is just as favorable, and with less risk, than the same portfolio without life insurance. And incorporating permanent life insurance into a client's portfolio can provide both greater legacy value and greater living value than a portfolio without life insurance.
Weber compares a portfolio with municipal bonds as part of the fixed-income portion to one where the income from the muni bonds is used to buy a life insurance policy. Weber assumes in these cases that the insurance is a lifetime need for the client, who is keeping it until he dies.
For example, Weber cites a 45-year-old in good health, in a high-income tax bracket and with an investment portfolio that contains $500,000 of municipal bonds as part of the fixed-income component. Weber assumes there is a 4% yield on the muni bonds, (I know we could quibble) which would produce non-taxable cash flow of $20,000. The investor could use that money to pay the premium on a permanent life policy rather than reinvest it in the bond portfolio. The all-bond portfolio would produce slightly more asset value than the "bond plus policy cash value" portfolio for the first 19 years. But then the latter portfolio moves ahead. And the bond-plus-death-benefit option, when compared with bonds only, is considerably greater in all years.
But why do I consider Weber's analysis noteworthy when the same argument has been made before? Because Weber doesn't load the deck. Life insurance agents have been trained to believe that the answer to all life's financial questions is to buy life insurance. Use it for college funding, retirement, buying a house, whatever. I've talked with too many people who have been tricked into buying a policy even though they didn't understand that they were buying insurance. I remember one retiree, the former chief financial officer of a large company, who contacted me when I was writing a column for The New York Times. The product he'd bought to help fund his grandchildren's education was called "The Money Tree," but it wasn't producing any money. We discovered it was life insurance, which he did not need, and which was not an appropriate vehicle for his goal.
Weber is an objective judge with a background in the insurance industry. He had reservations about how insurance was sold, so he moved over to the other side-to consulting, where he offered second opinions on insurance policies for family offices and served as an expert witness. He does not sell insurance. "We will not, cannot and won't sell insurance," Weber says. He says he won't even let an agent buy him a cup of coffee.
I think Weber's paper makes a contribution to what is becoming a small, but objective, discussion on the value of life insurance. The voices in this corner of the industry are growing in importance. In addition to Hunt and Katt and Daily, there is David Barkhausen, a consultant in Lake Bluff, Ill. And Scott Witt, in Milwaukee, a former pricing actuary who now works as a fee-only consultant, building custom policies for each client. And there are life insurance agents, too, who break the mold, people like Chuck Hinners in Middleton, Wis., and Brian Fechtel in Port Chester, N.Y., who believe that the customer comes first.
Of course, I don't pretend to know all the people in the industry who serve the client first rather than first serving themselves and their companies. Nor could I tell consumers where to find them any more than I could identify all the "honest" financial advisors. But the good news is that these voices are growing louder and more numerous. In the past, I held out little hope that the insurance industry, which I've covered for 30 years, would produce enough smart, courageous people who would go against the industry's model to develop a model for clients instead. The people who choose this path must be willing to sing for their supper rather than just sit back and collect commissions. Financial advisors have paved the way. Now the insurance industry is producing its own "expert witnesses," who tell the truth and work for the consumer. This is a movement I'd like to keep up with. New information is welcome.