Another Suze Orman blunder?

On Sat. Sept 21 Suze Orman once again complained  about Whole Life Insurance. She tends to  mistakenly refer to all cash value life insurance  as whole life. In Fact there are several types of cash value insurance. They meet different client needs and perform quite differently. We will discuss them later.

She was complaining about the fact that  a caller had an  insurance policy that had two different projections of the cash value performance. One was the current performance and the second was the lower but Guaranteed minimum performance.  The Guaranteed performance table showed the absolute minimum performance for the cash value within a life insurance policy.  Depending on the policy  and the company the guarantee may range from about 1-5%. these numbers vary from low to  reasonably competitive.  Compare that to the  guaranteed performance of a market linked product including but not limited to Stocks, bonds, mutual funds, etc. Do they guarantee your principal? NO. Do they guarantee the dividends in future periods? NO.  Do they guarantee the interest rate earned under all circumstance? NO. Even Bonds with a guaranteed rate are dependent on the bond issuer not going into default! So this guarantee is based on a conditional assumption. I am not suggesting that you should not own these products.  Far from it. I own some myself.  What I am saying is that you need to  understand that these are all risk assets!  Risk assets by their design go up and can  go  down in value. What I am saying is that you need some assets that are NOT RISK Assets. Insurance and Annuity products are often logical choices for Safe Money. 

The Current rate table in an insurance policy shows the rate currently being earned on the policy cash value. The company also does some historical look back and  determines a reasonable rate based on that review. It may be a 3, 5, 7 or even 10 year look back. That is the rate of return that shows up in the Current table.  Some policies even include a third table called a midpoint table somewhere in between the two.  The Guaranteed table is just that, the current table is a projected but reasonable number looking forward. You might do better you might not do quite as well. Three more things that your market money cant or does not do.  If  you  die before you expect to die the Death Benefit is a multiple of the cash paid in premium. Second if the policy is properly selected, designed and funded the cash is available to you while you are still alive, or your beneficiaries Income Tax Free. Third, if you wish to borrow cash value you can even  make money on the money you  have loaned to  yourself!  Last year clients earned as much as 8% on their loan value and as much as 12% on their cash value. Try to  find that  with a mutual fund!

Google   bond default, read the newspaper about municipality and even state default. Read the paper about our federal government and the possibility of a federal default if the incompetent elected officials can't pass a spending bill!!!! Suze often  talks about making 8% in the market. I ask where are the quarantees to back that up? How many investors can honestly say that they have made an 8% compounded rate of return over the past 9 years or the past 15 years.  If you  had then $100,000 would now be worth over $200,000 (9 yr) or $300,000 (15 yr) and we would all be rich! Unfortunately that is not Quaranteed. Even though  the markets are at all time highs many investors are not even even with  what they  had!  I mention this only so you can look realistically at her comments.  Nationally the average investor has been lucky to make 3-3.5%. Even with that, the gains and even a substantial percentage of principal are at risk during the next market downturn.