In 1965, AL Williams died of a heart attack. He had a whole life policy, but he left the rest of the Williams clan without enough insurance. This made an impression on his son, Art L. Williams, Jr., whose cousin later introduced him to the concept of term life insurance, which was relatively unknown at the time and offered much more face value at cheaper rates. .
Driven by the financial difficulties his family had endured, Art launched himself into an ambassadorship for life with almost religious fervor. He coined the phrase “Buy the term and invest the difference”, BTID for short, launched a new company with the concept, had some 200,000 agents under his umbrella and the rest is history.
Or is that it?
Some 40 years later, a study published in the May 2015 issue of the Journal of Financial Service Professionals indicates that Williams’ grand experiment had unintended consequences for families. “People don’t buy forward and invest the difference,” said David F. Babbel, co-author of the study. “Most likely, they will rent the term, expire it, and spend the difference,” leaving many families uninsured rather than simply underinsured when a loved one dies.
Even the small percentage of people who fully implement Art’s advice and invest the difference can emotionally invest in the market by buying high and selling low, or buying managed investments without realizing the potential impact of associated fees on their savings. People who think they’re playing it safe by overfunding a 401k beyond the amount an employer matches often don’t consider that if the management fee is 3%, they should make a 3% return every year. to break even and protect your principle.
Assuming everyone who bought forward actually invested the difference wisely, Whole Life still offers advantages that BTID doesn’t. Whole life locks insurability, allowing the insured to buy additional coverage with accumulated cash value, even if his health has deteriorated to the point that he can no longer buy new policies. In addition, they can borrow against the cash value, convert it to guaranteed income, or receive tax-free distributions.
Highlighting the value of BTID to investment firms, Chris Blunt, Executive Vice President of New York Life, says, “Generations of Wall Street professionals have been trained by their firms to drop cash value life insurance so that investment firms investment can keep those dollars under management.” He also points out that there is no need to decide between term or permanent life insurance. Young families can purchase both and convert the term to whole life as their income increases.
Art Williams’ legacy consists of overpriced term-only options and a drastically reduced group of brokers who, like the Wall Streeters mentioned by Mr. Blunt, push only one product and openly disparage all other options available to their prospects, calling insurance “Cash value”. Junk value” and a “horrible product” and promoting BTID as the one solution for everyone. The 40-year look back at this way of selling life insurance detailed in this study does not support these claims. American families deserve more in terms of options and advice.
