Whole Life Insurance: A Steady Ship in Stormy Market Waters
A brief analysis of how whole life permanent life insurance can insulate against market volatility
Reading the news everyday is an exercise in navigating click-bait headlines that claim the next doomsday is around the corner. Recently, Goldman Sachs warned against expecting the same S&P 500 returns we have come to expect over the last couple of decades, predicting the US Stock index would return just 3% annually over the next decade. The sobering reality is that even if the S&P continued to grow at the current pace of the last couple decades, the majority of stocks actually lose money and Treasury bills have delivered better returns than nearly 60% of stocks ever listed on Wall Street. The good news is that Whole Life policies can insulate against market volatility, and top mutuals paying dividends above the guarantee nearly every year regardless of recession or not—including MassMutual which has paid them every year since 1869.
Historical Performance Through Market Downturns
The resilience of Whole Life policies becomes particularly evident when examining their performance during major economic downturns:
During the 1973-1975 recession, when the S&P 500 dropped by 48%, Northwestern Mutual maintained a dividend interest rate above 7%.
In the early 1980s recession, while interest rates soared and markets struggled, major mutual carriers like MassMutual and Guardian Life maintained dividend rates between 10-13%, outperforming many traditional investments.
Through the 2008 financial crisis, when the S&P 500 plunged 37%, the average dividend interest rates from top mutual carriers remained stable, hovering between 6-7%.
Even during the COVID-19 market crash of 2020, leading mutual carriers maintained dividend interest rates around 5%, demonstrating remarkable stability when other investments faced significant volatility.
The Dividend Advantage
As evidenced by historical data, the dividend interest rates for three of the top insurance carriers—Northwestern Mutual, MassMutual, and Guardian—have consistently exceeded corporate bond interest rates since 1980. This means that if you seek protection from market volatility, then investing part of your financial portfolio in a Whole Life policy under a top mutual carrier could be a prudent strategy.
Consider these compelling statistics:
MassMutual has paid dividends every year since 1869, including through 30 recessions.
Northwestern Mutual has maintained a dividend payment record spanning over 150 years.
Guardian Life has paid dividends for over 130 consecutive years.
Moreover, the cash value of a Whole Life policy can be accessed via tax-free loans. These tax-free loans, often at more favorable terms than the bank, can then be utilized as additional investment liquidity or supplemental tax-free income if market volatility, and the need to time the market, is hurting your chances at retirement.
A Multi-Purpose Financial Tool
Essentially, Whole Life allows the policyholder to insulate themselves against market volatility, ensuring a guaranteed return while working towards multiple goals at once: tax-advantaged growth, protection from market swings and moves made by politicians, retirement planning, and estate planning to name a few.
A whole life policy held under one of the top mutuals will often pay dividends to the policyholder higher than the guarantee because of their diversified investment strategy. They're invested in bonds. They're invested in the stock market. They're put into all kinds of alternative investments with managers worldwide. In turn, this creates the opportunity for the policyholder to use their policy while they are still alive—one of the most misunderstood traits of permanent life insurance.
Beyond Traditional Retirement Accounts
Times of economic uncertainty are stressful for anybody building wealth, or with significant amounts of wealth, particularly if you're keeping an eye on the performance of your 401(k) or Roth IRA. The additional advantage of permanent life insurance, in comparison with a 401(k) or Roth IRA, is that there are no contribution limits or age-restrictions related to investing money in a policy.
These are just a few reasons why permanent life insurance is so powerful, and why people perceive PLI to be too expensive, because they do not realize it works towards multiple goals. Whether Whole Life is the right policy for you is entirely dependent on your goals and life stage, and we can help you design the most holistic portfolio for your goals by tapping into the full spectrum of permanent life insurance.
The Bottom Line
In an era where market volatility seems to be the new normal, Whole Life insurance stands out as a financial tool that offers both stability and flexibility. Its historical performance through various economic cycles demonstrates its value as a cornerstone of a well-diversified financial strategy.