This month’s column focuses more on the digits, that is the hands, which we extend to past and future generations rather than on computer digits. I love to watch the hands of my daughter play the harp. A favorite song she plays for the Christmas season is “What Child is This?”
Although people have different beliefs and customs, all can celebrate the wonder of a newborn child and the hope for peace and goodwill. Life insurance is a business, but it is rooted in this connection between generations.
It Takes a Village
I live in Park Ridge, Ill., one block from the Million Dollar Round Table headquarters and three blocks from where Hillary Rodham Clinton grew up. Mrs. Clinton is known for her promotion of the phrase “It takes a village to raise a child.” People disagree on how various governments should be involved, but certainly we need effective communities to strengthen families. Life insurance is by nature a communal effort. Insurance often became available through fraternal or religious societies that agreed to share risks and lend confidence and security to the future.
Also a block from my house is a church where the community gathered three times in a few months to mourn for great tragedies. A sweet and playful 12-year-old boy died after a one-year struggle with cancer. An energetic 15-year-old girl went rollerblading and died after being hit by a car. A vibrant mother of 10 children died in a car accident. Yet people of different faiths from the community came together not only to grieve, but to celebrate these wonderful people.
What plans should families make for such risks? How do you evaluate these risks against other needs and goals? Finances and emotions become intertwined.
Life Insurance for Children
Would you recommend life insurance on the lives of the children? One position is that life insurance is not needed since no one depends on the child’s income. Other opposing reasons are (1) small policies for funeral expenses may not be cost-efficient, and (2), families typically would be wiser to spend their money on other essentials such as life insurance on the parents and savings for education.
However, low-benefit life insurance on a child can make sense as a rider to a parent’s plan. The child rider is also more cost-effective for large families. Also, should a child die, families may have medical debts and the parents may have difficulty resuming their jobs or businesses. The family’s income is likely to be affected, directly or indirectly.
When parents or other benefactors have enough assets to give to children, life insurance can be an effective accumulation vehicle. It can provide an investment alternative besides its protection elements. Loads and charges may hinder its ability to fund college costs, but policies can be priced to achieve a quicker return. These policies can also include options to add more insurance and develop significant cash value after the child graduates and becomes a working adult.
The Value of Children in Past Ages
In past ages, having many children made practical economic sense. Children could be put to work at a young age. Parents also needed children to take care of them in old age. With high mortality rates, parents expected that some of their offspring would not survive to maturity, so they had an economic incentive to start large families.
To get a sense of economic value within a starkly immoral practice, I recommend the book Time on the Cross, The Economics of American Negro Slavery by Robert W. Fogel and Stanley L. Engerman. The authors use statistical methods to challenge commonly held economic views of slavery. Some of their conclusions are controversial, but they do a good job of analysis and of countering racists’ views that persisted after emancipation. They show the great skill, productivity, and adaptability of the slaves despite the terrible burdens of slavery. Moral and political changes were imperative due to the continued economic strength of the system. It would not die on its own. (The authors also put the masters into clearer perspective by showing their economic incentives for keeping families together, at least until children became adults.)
The lifetime economic value of a slave would increase from birth and peak at age 25 to 30. The curve would reach about half of this economic value by age 9! As the child survived early years, his or her economic value increased with future economic potential. Eventually, economic value would steadily decrease to about zero at age 70. This curve was comparable for free industrial workers, who were often comparably exploited as far as their ability to keep value for past work, but of course, the free workers were free. They had some chance of finding a better life.
I read the wills of my ancestors in Virginia prior to the Civil War. Loving words to family are contrasted by the stark commerce of slavery. A slave and his or her children are given as a perpetual legacy. Liberty and opportunity are terrible things to waste. An inheritance can also be a terrible burden to receive.
Economic and Spiritual Values Today
Today we have far better freedoms and opportunities, yet the value curves are comparable. One is for potential work. The other is for past work. The curves are pushed out further due to longer life expectancies and more years in school for children. (A potential value curve for newborns would not rise as sharply due to a higher start for a newborn. Newborns also now have much lower mortality rates.)
The declining potential value curve for older people is balanced by an increasing value curve for past work. Beyond economics, we also recognize the great value of wisdom and legacies of love that the older generation passes on to younger ones.
The spiritual value of children and parents to each other is immeasurable. This love motivates parents to make great investments of time and resources. It also helps children work within the shortcomings and practical limits of the family.
The LIFE foundation has done a great job of making the public aware of the basic needs and values of life insurance. Prior to its realLIFEstories campaign, I worked with community groups to help senior citizens put together a Life Portrait—a brief personal history with a few pictures. They gave the portraits as holiday gifts to their families.
We are seeing great transfers of wealth to future generations. We need to consider the spiritual as well as the economic ramifications of these transfers, making sure that financial wealth is a blessing, not a burden. A pioneer in this area is Robert S. Littell (www.bob-littell.com) creator of the Family Incentive Trustª. It combines estate planning with goals aimed at building character in current and future generations. It gives incentives for positive behaviors and personal growth.
What similar alliances would provide a win-win-win situation for client, agent, and company?
Chicken Soup for the Life Insurance Soul
A great story in the history of life insurance is about a 19th century life insurance executive who was a physician. A major policyholder was seriously ill. The policy claim would have jeopardized the solvency of the insurance company. The doctor nursed the policyholder back to health. He saved the life of both the policyholder and the company. I wonder if he served him chicken soup.
From the wisdom of Jewish humor, the question is why does a man always need at least two chickens? If one chicken is sick, he can kill the healthy one and make chicken soup for the other. Half of your chickens is a high cost for health insurance, but the principle is one of sacrificing for those in need. (A story is also told of an old rabbi who is ridiculed for planting trees. “You will never see them!” he is told. “I do not plant for myself. I plant for those who come,” the rabbi replies.)
A question comes first, before the chicken or the egg. You have to ask what your client wants. If it is morning, serve eggs. If it is lunch, serve chicken. If it is evening, help the hen gather the chicks until the rooster crows for a new morn.
We need to be aware of changing needs according to a person’s stage of life. Should the life insurance business form greater alliances with complementary services? Youths, for example, need protection and opportunity. What can insurance people do to promote education, health, and career development? Should agents form alliances with skills training and employment services? Can we start young clients with low-cost term insurance and then efficiently move them into policies with long-term value? If affiliated services help them earn more income, we will have better clients.
As people move toward retirement, can we help them allocate assets effectively and plan for a long life? Can we improve Social Security funding of retirement needs? The potential depletion of Social Security is similar to the tremendous problem of underfunded life insurance policies. How should clients rebalance these policies? For those who do estate planning, can we address the spiritual as well as the legal and economic? As digital agents, we can use our creativity and tools to help connect these generations.