Filed Under:Life Insurance, Life Products

Whole life insurance: More important today than five decades ago

To fully appreciate why whole life insurance is more important to retirees today than it was 50 years ago, this article is going to contrast the lives of two couples: one that existed in 1960, another in 2010.

Our first couple is represented by Ward and June Cleaver of the television show "Leave it to Beaver." As you may remember, the Cleavers represented a fairly affluent middle-class family in the 1960s. Ward appeared to be a successful executive, while June spent her days as a housewife.

Now let's move ahead a few years. Their sons, Wally and Beaver, are out of college, the mortgage on the house is liquidated, and Ward is looking forward to retirement in 1982. His firm has a generous defined benefit retirement plan, and he will have a Social Security check in the mailbox monthly, as well as the income from an investment portfolio created after the mortgage was burnt and the boys had finished college.
June, of course, would receive little -- if any -- Social Security, as she may only have been employed part time, or perhaps never was a part of the workforce.

As Ward sits there in 1970, pondering his future years, he concludes he will be able to live pretty well after retirement. Further, Ward decides that he will eventually be able to drop that term life insurance policy he has had for years, because he will no longer have future earned income to protect.

But what happens to June if Ward dies shortly after he retires? Will she have enough money to live out her life comfortably? Yes, Ward took the pension option that will keep on paying after either one of them dies, and June will still receive his Social Security checks. Likewise, the investment portfolio will continue to generate income.

There is no doubt life was good to Ward and June, but what would happen if we moved ahead 50 years, and we made just one change -- in June's career choice?

The modern Cleavers
Let's assume that the modern Ward and June have worked for their entire adult lives, and both have earned about the same income. In this example, each will collect $20,000 from Social Security, and they expect to liquidate $20,000 annually from their 401(k) portfolio. Their gross income would therefore be about $60,000 annually during their remaining years together.

But what happens today if Ward dies at age 70 and June lives to 90? Ward's Social Security benefit would disappear, and June would have to make do on $40,000 annually. Does anyone really believe June's expenses will go down by 33%?

In essence, even though Ward was retired, he was still "earning" $20,000 per year from Social Security just by being alive.

The proceeds from a whole life insurance policy on Ward could have protected June's financial future. Let's say that Ward and June had converted their $500,000 term policies to $250,000 whole life policies when the modern editions of Wally and Beaver had finished college. That $250,000 (even with today's low annuity rates) would generate at least $20,000 annually from most any annuity for either survivor's entire life.

Life imitating art
Now, to close, with a real life event that offers credence to this concept. Hugh Beaumont, the actor who played Ward Cleaver, was born in 1909, and died at age 73, in 1982. Barbara Billingsley (June Cleaver) was born in 1915, and died at age 94 in 2006, some 24 years after her television husband did.

I wonder if the 1950s TV insurance agent, Jim Anderson (played by actor Robert Young) of "Father Knows Best" fame, ever talked to the Cleavers about converting Ward's term insurance policy to a whole life insurance policy. Then, had Ward's defined pension benefit evaporated when his old company's new management team misappropriated the funding, June would have still lived a financially secure life. Just a thought.

Gilbert W. Chapman owned an insurance agency in Vermont some years ago. Now, at age 64, after becoming bored with an early retirement, he will shortly be returning to the industry as an agent for a major insurance company in York, Penn. He owns $200,000-plus in whole life insurance to replace his Social Security checks in the event he dies too soon. His wife of 40 years is the named beneficiary.

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