Surprises at Every Crossing: Permanent Life Insurance and the Allure of Its Cash Component

Surprises at Every Crossing: Permanent Life Insurance and the Allure of Its Cash Component

I just read a stimulating article in which the author said she uses a high deductible health plan (HDHP), specifically its attached health savings account, as a retirement savings vehicle.

It recalled the way policyholders employ the cash value portion of permanent life insurance, except for one thing: the HDHP strategy sounds like a keen way to place yourself on a collision course with steel-hard reality.

Fraught memories take me to a time in Phnom Penh, Cambodia. I was coming out of a co-working space, a comfortable one with quick Wi-Fi and free Budweiser beer, after whipping up blog posts for my pals – well, my bosses – at Cavalier Associates. A simple street crossing to the tea shop became another of my Far East follies: I got hit by a motor scooter. Bam!

It was 5:30 pm, duskish; traffic on the two-lane was stopped dead, so it seemed safe to cross, despite the gloom. I didn’t notice the youth on a racing two-wheeler, zipping down the center line. I’m still confused why, since in Southeast Asia, wild-teen-on-a-scooter is a well-known unknown factored into everyone’s planning.

The kid knocked me right up into the air. The force must have been tremendous, given my planetoid mass. I was completely unhurt, which I attribute to a merciful God and the part of my anatomy that first contacted the asphalt (this word is your clue). I bounced, then lay quiet in the road, reading ‘Michelin’ as the tires rolled by, wondering if I’d reached my actual, if not actuarial tabled, end.

A tuk-tuk driver cleared up the issue: he hauled up my bulk, asked what I was expletive-doing in the road. “I think I broke my laptop,” I warbled to his head-shaking. Coming out of concussion, creaking, aching, but still running, I had a thought: blog writers can take a punch. Yet even the luckiest-charmed of us had better take care.

I tell this tale often; ad nauseum, actually. If you know me, you’ll never hear the end of some yarns, like the time I saw Lauren Bacall on a plane, yonder in first class, or the day I discovered that my great-great grandfather, Thomas Cheese, if you please, was a master sergeant in the United States Colored Troops in the Civil War. Some stories are pins on life’s map, raising changing questions, ever-evolving lessons for living. We’ve all got a few.

In the insurance world, permanent life – whole, universal, indexed and variable – works the same way: its benefits bear repeating. As soon as you stop chortling, I’ll prove that I’m right, as sometimes I am.

Let’s get back to HDHPs and their health savings accounts. That writer I referenced says she’s young, hasn’t had children, is hale-healthy, and habitually avoids doctors and their bills. She’s never crossed paths with my young friend Tip Phat and his whirly-wheeled clonking machine or anyone like him, and best of luck to her.

HDHP cash accounts are intended to cover the sizeable deductible associated with the product. Our writer keeps $5,000 on hand for medical emergencies and lets the health savings account compound tax-free toward retirement. She makes the maximum annual contribution – it’ll be $3,600 in 2021 – without fail, and hopes that her good run in life continues.

The young author knows that HDHP holders face a minimum deductible of $1,400 – the statutory definition of these accounts – and copayments, coinsurance and other deductibles can raise an individual’s out-of-pocket costs to nearly $6,800 in a medical emergency.

Let’s repeat it: she’s healthy today and has no experience of accidents. The article was sharp and the author has brains; she concedes her plan’s foundation is vulnerable to variables, as in childbearing. If our author takes that blessed plunge, the HDHP strategy might no longer suit, she says, and she’d be open to alternatives.

Permanent life insurance isn’t for everyone, as I’ve often underlined. Yet if it fits, it’s a spectacular tool for retirement planning. Term life sits well on many clients, but with no cash component or guaranteed death benefit, it lacks the key features of permanent life.

If policyholders reach the end of the term without greeting the reaper, they get nothing from the insurer. Living long isn’t bad news as a rule, but the thought that something more productive – more compounding – might have been done with the premiums may cool the celebration a touch.

Permanent life policies are among the safest investments on the market. The cash value appreciates tax-free and once the contractual ‘hands-off’ period passes, the policyholder can borrow against the account at favorable rates or even drawn down its balance.

These actions reduce the death benefit by an equal amount until the loan is repaid or the withdrawn funds topped-up. If a client suddenly needs money – to cover an accident, say – the cash account stands by as a most welcome servant.

With permanent life policies, a waiver-of-premium rider can be bought as an option. The rider may be paid for at policy issuance or in increments added to the premium. It activates if the policyholder is incapacitated by injury or serious illness and can no longer work in their usual capacity. The premium rider is an excellent feature that keeps people covered when straits are dire.

I shouldn’t entirely disparage the HDHP strategy, which makes sense if other arrangements are made to finance healthcare and cover accidents. It’s nice to be young, spunky and lucky. But as Napoleon’s spoilsport Corsican mother liked to say whenever sonny would start into bragging: do enjoy it, just so long as it lasts.

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