Seventy-one years ago my parents took out a mini-sized endowment policy on mini-me. I have never seen the point of insuring kids since they are an expense, not an income source but hey – my parents must have seen it differently. Life was more precarious for kids in the 1940s and maybe they needed burial money just in case.
Be that as it may, I survived my teen years and the policy came due in 1967. My mother took the proceeds, prepaid a $5000 whole life policy for 3 years and I took it over as a working stiff in 1970. After 48 years I still have it. The policy was with Prudential but they have long since left the Canadian market and now I am with London Life – the Freedom 55 people. But I digress.
So what has 50+ years of experience with a whole life policy taught me about life insurance finance? Let’s see:
- Prudential has won the bet (or have I?) Really all an insurance policy can be is a bet on the wheel of life. The insurance guys bet you’ll live, you bet you won’t. I guess from a financial point of view Prudential and now London Life won. They didn’t have to pay, they still haven’t. And they have had 50 years of returns from the money I paid in – minus the dividends of course. I’m grateful for the result though.
- I am not seriously out of pocket. The premium on the policy has been a level $80 per year and for as long as I can remember I have used the yearly dividend to pay it. At this point, the policy increases in cash value more than any amount I pay. The insurance salesman would say “It pays for itself.” I guess so.
- By now the risks for the Life Insurance Company are minimal. The cash value of the policy is more than 90% of the face value and with unused dividends, the nominal face value is actually higher than it was in 1967. It won’t cost London Life anything to pay off in the event of my demise. This “feature” of whole life is to be expected – that is how they keep the premium level all those years.
- All it’s cost me is inflation. The amount of the cash value today is more than I actually paid in over the years. This neglects inflation of course. And you can’t ignore inflation. Back in 1967 $80 was close to a week’s salary and $5000 was a year’s salary. Today you get a decent meal for $80 and $5000 might pay for a nice Transatlantic cruise. I haven’t worked it out, but I assume I paid more in the past for less today. I am still here to write about it though.
- Was it worth having this policy? On balance I’d say no. This particular policy would never have done anything to pay expenses had I died as a young father. I had term insurance for that. Today it doesn’t cost me anything and I suppose it can pay some estate taxes. I thought about canceling it soon after my working life started but the insurance guy convinced me not to. Not that he had any conflict of interest or anything. I did decide back then to deduct the dividend as part of the payment. Basically, I look at the policy today as a kitten that followed me home. It’s fun to go back and look at the old paperwork and see how my life was in 1967. Occupation: Student. Work activity: Studying. Pretty stimulating, eh?