A Bunker for Scary Times

Suppose there was a financial instrument — with a track record stretching back 1,400 years — that was so solid that it: survived the Great Depression intact; earned untaxed interest at a competitive rate; could provide cash at will, regardless of one’s current financial situation; and could be used by individuals, as well as by major corporations and banks, as a safe harbor during economic turmoil?

The instrument I’m talking about is participating whole life insurance, the kind of insurance our parents and grandparents owned before the stock market began to boom in the 1980s and 1990s. After mutual whole life saw our elders through thick and thin, it went through several decades of being muscled aside by the allure of the stock market. It’s making a big comeback.
I’m astonished at how few people and investment professionals I meet understand how these policies work, or don’t offer them to clients because they aren’t sexy or new.

Today, these contracts are the favored investment vehicle of the wealthy. But too often, when sold by the financial industry, they are sold in the wrong form. Term insurance is still the most economical life insurance option for most people. For clients looking for a better place to accumulate cash than a bank account or the Wall Street casino, however, mutual whole life insurance, done correctly, is the closest thing to owning your own bank.

The concept is rather simple.

You own the bank. Unlike most products, which are created and sold to benefit stockholders, these contracts are owned by the policyholders, the sole constituency they serve.

Ironclad guarantees. The cash value and death benefit are tightly regulated and insured by the states. And many policies today provide benefits for chronic long-term care.

Even banks and corporations buy them. Major corporations and banks buy these policies and utilize them as a safe place to accumulate their cash. They invest with other people’s money but protect their own money. Instead of doing what banks say, do what banks do.

In the end, mutual insurance is only one part of a financial plan, the bunker you can retreat to when the rest of the world is falling apart and you can’t sleep.

These policies got our grandparents through the Great Depression, and if structured correctly they can get you through those scary times in your life.

John E. Girouard, author of “Take Back Your Money” and “The Ten Truths of Wealth Creation,” is a registered principal of Cambridge Investment Research and an Investment Advisor Representative of Capital Investment Advisors in Bethesda, Maryland.