How Participating Whole Life Is Like Owning a Business

Many believe that owning participating whole life insurance is an investment, but it is actually an expense which must be overcome before it generates any gains for you prior to dying.  In many ways purchasing a participating whole life insurance policy is like starting your own business from scratch.  There will be expenses for:

  1. Rent or mortgage payments
  2. Equipment and/or supplies
  3. Education
  4. Taxes, and
  5. Protection insurance from liability, fire and accidents.

After all the expenses are added up, only then will you know what you need to earn to make a profit.  Of course, profits are the purpose of all businesses.  Nobody can afford to work for free. If your business is totally dependent on charity, then the “profits” your business receives are merely the generosity of others, not profits you generated.  Government obviously doesn’t depend on charity, but instead takes the profits of others into their control, otherwise they would have nothing.

Mutual life insurance companies are owned by policyholders. Each policyholder, when they purchase a policy, is opening up a profit-sharing account with the other mutual policyholders.  The premiums paid are collected and invested so that the gains generated in those investments can pay for the expenses of running the mutual life insurance company, and the balance earned, but not used for expenses, is given back to the policyholders.

In essence, each participating whole life policy purchased from a mutual insurance company can be likened to starting a new business where the expenses have already been calculated accurately so certain values can be guaranteed and any profits can be shared with the policyholders based on the risk each policy poses to the rest of the insurance pool.

Starting a business is risky.  According to 2019 statistics, 90% of startups fail:

  • 5% in the first year
  • 30% in or by the second year
  • 50% in or by the 5th year, and
  • 70% in or by the 10th year

And certain businesses have higher failure rates than others.  For example:

  • 53% of constructions companies fail
  • 51% of manufacturing companies fail
  • 44% of educational and health related businesses fail
  • 42% of finance and real estate businesses fail, and
  • Only 50% of food service businesses make it past 5 years.

Actuarial science takes the risk out of opening up a participating whole life insurance. With participating whole life insurance, the actual expenses and guaranteed values are known before the policy is ever opened. And any profits generated (dividends) merely sweeten the deal for the mutual policyholders.

John Hancock, one of our founding fathers, understood this economic fact:

  • “The more people who own little businesses of their own, the safer our country will be, and the better off its cities and towns; for the people who have a stake in their country and their community are its best citizens.”

Most people today can’t afford the risk of opening their own business, but nearly everyone can afford to purchase a participating whole life insurance.  And the more people who own participating whole life insurance, the safer and better off our country will become because people that have stake in their country make better citizens. Good news for policy owners is that owning participating whole life insurance the risk of failing has been eliminated.

Dr. Tomas McFieDr. Tomas P. McFie

Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of McFie Insurance which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.