Whole Life Insurance - Part 3

The insurance company's general portfolio is the investment vehicle for whole life insurance. The combined general account of all life insurance companies is composed of about $2 trillion.

You can expect investment results within this portfolio to parallel those of a portfolio that is approximately 95 percent long term bonds and mortgages and 5 percent stock. Based upon the performance history for the past 74 years, such a portfolio would produce a gross return of between 5 and 6 percent.

Because of the regulatory pressures of the 1990s that came about as a result of so many company failures, these general account portfolios have bonds of shorter maturities, fewer mortgages, and lower returns than they had in the early years before the failures. You need to evaluate the results that can be expected from these shorter-term, higher-quality investments and decide whether you are willing to accept the risk and limitations inherent in investing in these products.

Also, you need to decide if you want part of these investment results expended on your behalf to pay for your life insurance. If, after you have examined all these facts, your answer is yes, you do want bonds and mortgages in your portfolio, and yes, you do want to have part of your return buy life insurance then your next step is to zero in on the company. How does the company you are considering manage its general portfolio? What have its investment results been in the past, and what can you expect in the future? You can check the company's annual reports.

Best's Insurance Reports-Life/Health offers annual, comprehensive statistical information on the financial position, history, and operating results of life insurance companies in the United States and Canada. The Insurance Forum is a monthly publication distributed by Joseph M. Belth, who is a professor emeritus of insurance in the School of Business at Indiana University in Bloomington. He is the Ralph Nader of the life insurance industry and is admired for his tenacity in penetrating the world of insurance industry finances. From these sources you should be able to obtain a company's track record of portfolio rates of return, ascertain the general makeup of its portfolio, and garner an opinion from Belth on risk-reward relationships as a result of how the company is being managed.