The Hidden Value of Life Insurance

A gentleman by the name of Barry James Dyke wrote a book called Pirates of Manhattan a few years ago. In it, he predicted some of the financial problems that we had in 2008 and 2009. Mr. Dyke recently wrote an article called New Life for Life Insurance-Now Could Be the Right Time to Invest in Your Own Health. Life Insurance, as we talk about it, is kind of a misunderstood asset. In this article, he points out how companies, corporations and banks have taken a new look at the Life Insurance industry and have put a lot of their capital into life insurance. Why are they doing that?

There are so many attributes to life insurance that make it attractive for companies, corporations and banks to invest in:

• Banks buy life insurance; it’s called BOLI (Bank Owned Life Insurance)
• Corporations buy life insurance; it’s called COLI (Corporation Owned Life Insurance)

I think that if we follow suit and think about our families, families should have FOLI (Family Owned Life Insurance).

Bank of America, at the end of 2009 had 137.2 billion dollars in Tier One Capital, of which 16.74 billion was in Cash Surrender Value life insurance. So you may ask yourself, why would they want to put money into cash value life insurance? There are so many good reasons:

• The cash surrender value of these policies is going to get them a very similar rate of return to investing in other fixed income assets.
• Unlike those other fixed income assets, these policies have a death benefit and the death benefit will eventually get paid.
• There is a very conservative arbitrage that banks and corporations take advantage of when buying life insurance, that families usually don’t.
• And that 4 or 5 percent long term rate of return that a life insurance policy might provide, becomes somewhere between a 6 and 10 percent rate of return when someone dies because instead of getting the cash value, the corporation or the bank will get the death benefit.

This article points out some of the analogies between the banks and the life insurance companies, and how the banks and corporations are taking advantage of these products and using them for their own benefit. Our advocacy is for the consumer to do the same. Click here to read “New Life for Life Insurance”.

I hope you enjoy the article and if you have any questions at all about your life insurance, send us an email or give us a call.

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