It’s Time to Be Elastic
By Kate Kinkade, CLU, ChFC

Those of us old-timers who did the CLU economics course when the “elasticity” of life insurance was a major part of the curriculum should be dusting off the textbooks. The theory was – is – that life insurance is a great “investment” in good times and bad. Whatever the economy, life insurance is appealing to consumers.

The cost of life insurance is insignificant and is an easy purchase when the market is up, real estate is up, and salaries are up. It’s a necessity when markets are down and earnings low. People buy life insurance all the time.

This is old data, but likely still true. Whether it is because the product is so elastic or the sales people are so persistent is a question, but the fact remains that people purchase life insurance in all economic climates.

Here we are again, in a challenging economic climate. Markets are down, real estate is down, and still life sales are up.

There can be no (rational) argument that life insurance provides the best guaranteed leverage (return-on-investment) of any financial instrument. This assumes, of course, that you are willing to wait until you die for the return and that the recipient of this return (the beneficiary) is important enough to you that their return equates to your own. Given those two assumptions: that you die and that you love someone, life insurance can’t be beat.

Most financial instruments are providing less than expected today. Fixed returns are low, dividends are down, real estate prices are depressed, and equities are unstable. One of the only instruments that is providing the same return as it did a year ago, two years ago, and previously, is life insurance. You can still pay X and get Y at death guaranteed.

There are variations, of course: variable life policies with guaranteed death benefits, more death benefit, and no guarantee. There is the cash value return; tax deferred loans, and withdrawals.
But, at its essence, the simple return on investment of a life insurance death benefit defines why life insurance remains an amazing financial instrument in good times and bad. As we are in the midst of a bad time economically, life insurance agents should be having a field day offering the only tax advantaged guaranteed vehicle available to people of every economic class, which has been here for centuries and still performs.