In speaking with a friend recently, he made a comment to the effect that “you hate term insurance.” I asked what gave him that idea, and he replied that I was always saying negative things about it in my weekly Commentary. That was news to me, as I have tried to make my position very clear: used appropriately, term insurance is an invaluable financial tool.
In reviewing past writings, I can’t find any instances where I have disparaged term insurance. I have and will continue to speak out against its misuse, but that, in my opinion, hardly qualifies as hating the product. There are many examples of perfectly fine products that are sometimes misused. That doesn’t mean that the product is no good and should be avoided. Just because a knife can be used to hurt someone doesn’t mean I shouldn’t use one to cut my steak.
I have personally put hundreds of millions of dollars of term insurance on the books. Why would I do that if I hate the product? As I’ve said, I don’t hate the product and I do it because term insurance is oftentimes the appropriate product for the job. Oftentimes, but not always.
Trying to use term insurance to fund long term needs will almost always not end well. Everything will need to break right for that to happen and as we know, everything seldom breaks right.
So am I unique as someone who sees the place for both term and whole life? While certainly not unique, I do believe that I am in the minority. I talk with and read many people in the industry who believe that not only is one product superior to the other, but that there is no need for the other product.
That is a ludicrous position to take. Would you hire a carpenter who said that he didn’t need a hammer because he had a screwdriver? An attorney who said that a will did the same job as a trust? How about an investment advisor who disparages stocks or bonds in favor of the other?
Term and whole life both exist because they each serve different needs, in a different manner. Term protects against an actuarially unlikely but financially devastating early demise. Since it is designed to expire before life expectancy, there is little long term protection.
Whole life, on the other hand, is designed to be in force the day you die. That’s why the premium is so much higher than term, so that the insurance company can reserve for the eventual claim.
So despite my friend’s opinion, I do not hate term insurance. Quite the contrary, I embrace it. Without term insurance, many needs would go unfunded. Unfunded needs, now that’s something I hate!