From the Sales Tempo, Issue of March, 1970
The Requirements of a Good Investment Plan
Those who say that life insurance is not a good investment in times like the present condemn it solely on the basis that it does not provide a big enough return on the money invested.
However, we see people dying every day who are getting a sizable return on their money, don’t we? But no investment can be measured solely by percentage of return. As a matter of fact most investments, which show a high percentage of return, do so because there are considerable risks or speculation attached to them... And generally speaking, a high rate of return is an indication of a more undesirable investment that’s why it pays the high rate.
There is one good test which can be used to determine just what a good investment is. A good investment should qualify under all of the following seven points:
1. A good investment must have a strong margin of safety.
2. A good investment should free the investor of administrative cares
3. A good investment should produce a reasonable rate of return and should provide a regular, stable income when needed.
4. A good investment should have a stable value and should be readily available when needed.
5. A good investment should be so constructed that it is convenient for a person to save and invest.
6. A good investment should be protected against the claims of creditors and should receive the best possible tax treatment.
7. A good investment should be semi-compulsory and once started, there must be a stimulus to keep it up.
Does Life Insurance meet all these seven points of a good investment?
We think it does. But what is more important is... "What Do You Think?"
Advantages of Life Insurance as an Investment Property
Most people can very readily see the need for increased insurance protection during period of inflation but many will argue strongly that while life insurance is good for protection in the time of inflation, it is not a good investment.
Following is a list of 28 Advantages of Life Insurance as Investment Property. What other type of investment, of either the fixed period or annuity type, can match these advantages?
1. An immediate estate is created with your first premium.
2. The insurance estate is of a fixed amount specified in advance by you to last for your entire lifetime or of any other period selected by you.
3. There is no fluctuation in the guaranteed cash values regardless of business or political conditions, economic factors or other circumstances beyond your control.
4. The plan is self-completing in the event of disability. Under the Waiver of Premium provisions premium deposits will be made for you if you become disabled.
5. There is normally no current income tax on policy dividends.
6. There is no current income tax on the annual increases in the guaranteed cash value of the policy.
7. There is no income tax on death proceeds. No estate taxes, if the beneficiary/ies are named "irrevocable" beneficiary/ies.
8. Proceeds pass to named beneficiaries outside the probate estate minimizing executor’s fees, attorney’s fees, appraiser fees, notary’s fees court costs or other administration expenses of any kind.
9. Policy proceeds can be made exempt from the claims of creditors of either the insured or the beneficiary/ies.
10. Policy cash values are exempt from attachment by creditors. Life insurance is unique in this respect in that the investor enjoys consideration not given to other types of investments. Cash value of life insurance is exempt from creditors.
11. Full title to a pro-rata portion of the insurance estate is available through the Guaranteed Paid-Up Option if you wish to discontinue premium payments.
12. There is a long-term guaranteed reasonable rate of return.
13. There is no money management or investment worry of either the insured or the beneficiaries. Most investments such as stocks bonds and real estate require not only careful selection, initially both these also require careful management, after these have been selected. The problem of re-investment is always reoccurring and every decision must be right or the entire plan may be impaired. Very few people are qualified to handle the problems of investment and re-investment.
Here again life insurance solves a man’s investment problems. Both at the start and subsequently, all of the investment worry of life insurance is handled by thoroughly trained and experienced investment specialists. Too often we fail to emphasize the high caliber of investment services performed for policyholders as a matter of course.
14. Automatic re-investment of the interest (and dividends puts the miracle of compound interest to work without any single day loss of time.)
15. Solvency is assured by a wide diversification of investments that cannot be accomplished by any individual investor acting alone. Life insurance company assets are diversified by types of investments, number of investments by date of maturity, by time of purchase and by geographical distribution.
16. The investments of a life insurance company are subject to strict supervision by State Insurance Departments.
17. Safety of the principal had been demonstrated in spite of wars, panics, epidemics and economic depression of over a century. In the Great Depression of 1930 in the United States, the life insurance industry was the only financial institution that met its obligations with almost 100% performance. The stock market crashed. Many banks failed, mutual funds melted away and many homestead assets were frozen but no major life insurance company failed and during the Depression years, the insurance companies paid out $28 billion to policy owners and beneficiaries.
A proof of the safety of life insurance as investment property lies in the fact that the safety record of life insurance over the years cannot be matched by any other financial institutions. The investment, which we sell to many, is absolutely guaranteed insofar as it is humanly possible to do.
This is the vital point. Until a man has provided a guaranteed basis of security for himself and his family, he has no business investing in speculative venture because equity investment, which may show a large increase in value during period of inflation, can just as easily decrease to the vanishing point when business conditions tighten up.
Guaranteed cash values provide a hedge against deflation or depression in the last 10 years. Periods of deflation have occurred in 1873-79, 1884-85, 1993-97, 1903-1904, 1907-08, 1914-15, 1921-22, 1929-40, and to a lesser degree in 1946 and in 1949. Periods of rising prices have always been followed by periods of falling prices so that further depressions during our lifetime are not only possible but also probable.
Our complicated economic structure is made of many interdependent factors that recession or depression may very well occur in spite of all our modern controls as a result of forces, which no one can foresee, and the spread in a kind of economic chain reactions. In the past many fortunes have been started during these depressed periods by using the increased purchasing power of the guaranteed savings for investments in equities while prices were low enough to be able to save; then invest (not speculate when prices were low). Instead of investing in equities when the prices are high, in the hope they would still go higher, they planned to have money to invest when nobody else had any.
18. Guaranteed level premium may be said to provide a hedge against inflation. During inflationary times prices rise and so do wages but life insurance premiums remain the same and will represent a small percentage of one’s income.
Because life insurance premiums are paid up over a long period of time the purchasing power of dollars paid tends to average out. Also proceeds may be paid out over long period of time with a similar dollar-averaging effect. The fact that the purchasing power of any investment may be more or less at various times is really important only if one needs to borrow against it and spend it.
Life insurance is a long-range investment whose cash values are more likely needed during a depression than during inflationary times when incomes are high and money is plentiful.
19. Policy cash values are always 100% liquid because there is a guaranteed buyer at its paid value. Many forms of property can be turned into cash only if one is lucky enough to find a buyer.
20. Cash values provide unsurpassed collateral for loans. Banks will loan 100% of policy cash values as against 60% of the appraised value of real estate and perhaps 50% to 60% of the market value of stocks.
21. Policy loans are immediately available for the insurance company on a confidential basis and at very low interest rates. Policy loans are not callable, they can be repaid in amounts and at decided times or can be continued in part or in full to the maturity of the contract.
22. Cost-free administration of the proceeds is available for beneficiaries through a wide variety of settlement options.
23. By the use of the settlement options, the insured can control the manner of payment to many years after one’s death. This cannot usually be accomplished with most forms of property except by the use of a trust and the expense of attorney’s and trustee’s fees.
24. The annuity privilege in a life insurance contract can provide a lifetime retirement income at rates guaranteed in the contract.
25. Although there is never any obligation to continue premium payments, the nature of life insurance encourage thrift and provide an incentive to save on a regular systematic basis. Most of us find it difficult to save without any definite plan.
26. Life insurance ownership is a mark of responsibility and character. Nearly every employment application, bank loan application, or a credit form one fills out contains a question about the extent of one’s life insurance estate.
27. Finally, the continuing service of a qualified life underwriter (that you are provided along with life insurance plans).
28. Your help can be invaluable to a man in setting up his insurance estate, coordinating it with his other assets keeping it up to date and making sure it is arranged to provide the maximum benefit for himself and his family.
Hopefully, this had awakened in the mind of each one of you, the belief that life insurance is one property, for most individuals and their families, which under girds all the others. Make it your mission to make sure that before your prospect become involved in equity products, they have an adequate life insurance program. We urge you to crusade of the promise that whether they live or die and whether their dollar is big or small in value, there will be some dollars always ready to step in and do the job when a family’s world come tumbling down.
The advantage of life insurance as property could be summarized by saying that ‚ life insurance is the only type of property where there is complete coincidence of maturity and need. The real test of a good property is not how much will it be worth in five ten or even fifty years but "HOW MUCH WILL IT BE WORTH WHEN IT IS NEEDED?"
Life Insurance is the most nearly perfect property ever created and the best basic investment proposition available anywhere.
Let’s go out and tell more people about it!
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