Important Things to Know
The term “investment-grade life insurance” is a marketing tactic used by insurance agents to sell whole-life insurance policies. While some life insurance policies may be better suited to maximizing cash value, there is no official designation for “investment-grade” life insurance. Ultimately, it’s important to understand that “investment-grade” life insurance is merely a marketing gimmick and not a legitimate financial product.
- Investment-grade life insurance: A marketing term used to promote life insurance, not a recognized financial term.
- Purpose of the term: To distract from negative perceptions and stimulate curiosity about the potential benefits of life insurance for retirement planning.
- “Investment-grade” misnomer: The term “investment grade” for life insurance is misleading and unnecessary, as it simply refers to a life insurance policy.
- Life insurance variations: While life insurance policies can pursue various objectives, such as maximizing death benefits or cash value, their investment-grade classification is problematic.
- Potential harm: There’s a big difference between harmless marketing and potentially harmful practices.
Investment-grade life insurance policies, similar to the 7702 Private Plan, don’t exist. It’s a marketing label that savvy agents use to bolster their efforts to sell life insurance. The idea is to break you of your traditional bias against life insurance.
The logic goes something like this:
Agent: Mr. Jones, considering your current financial situation and your retirement plans, I think you could greatly benefit from life insurance.
Mr. Jones (with a suspicious look on his face): I’ve heard that I should avoid whole life insurance because it’s a bad investment.
Agent: There are many bad life insurance policies, Mr. Jones, but I’m going to show you the unique opportunities that come with investment-grade life insurance.
Mr. Jones (looking curious): Investment-grade life insurance?
Agent: Yes, Mr. Jones. I wouldn’t recommend buying just any life insurance. No, no. You need a specialized life insurance policy better suited to your needs to utilize life insurance in retirement.
Mr. Jones: That sounds interesting. You’ll need to tell me more.
Just a way to shift the focus.
The hope is that using the term “investment grade” in connection with life insurance—or any other type of life insurance, really—will dispel the negative views of various financial experts who traditionally advise against life insurance. Or, if the person concerned doesn’t already have a preconceived notion about life insurance, it might pique curiosity.
However, there are no types of life insurance with a specific “investment grade” designation. At most, it could be argued that certain approaches to life insurance designation or certain types of life insurance products (those that have a higher initial cash value) might qualify as “investment grade.”
However, the term is a marketing term.
Attempt to Legitimize the Sale of Life Insurance
The use of the term “investment grade,” much like calling a life insurance policy a specialized plan, is further intended to create the impression that something special will happen with the purchase of that life insurance policy.
It isn’t.
If an agent tries to sell you investment-grade life insurance, you’re simply buying a whole life insurance policy. Essentially, you’re doing the same thing anyone else might do.
You may be asking, “But if using life insurance as a low-risk investment is a good thing, and the agent is actually using a policy that fits that goal well, what’s wrong with calling it investment grade?”
My answer is simple: Why don’t we call it whole life insurance?
But aren’t there different types of life insurance?
Life insurance policies can have different objectives. Some focus on maximizing the death benefit, others on maximizing cash value. With this in mind, it seems sensible to label those that aim to maximize cash value as investment grade—at least on the surface. This would at least help consumers identify the available products when purchasing life insurance that they plan to use for cash value.
While I understand this logic, I see a huge problem from a regulatory perspective. I don’t want to get sidetracked with an incredibly long discussion about what exactly constitutes an “investment” in the US. I will just say that I strongly doubt the current paradigm offers much scope for this idea.
But semantics aside, I would be perfectly fine with companies describing their products and their associated objectives a bit more directly. In some cases, they do. However, not every life insurance policy is clear about which product does what. Ultimately, I’m just one person and can only solve so many problems at once. This particular problem, while somewhat annoying, doesn’t cause so much trouble that it warrants industry-wide regulation.
Marketing Gimmick
Ultimately, this is just another marketing gimmick. You might be wondering how it differs from the sensationalist names some companies give color options these days.
While I don’t want to launch into an anti-marketing tirade here, I do believe there is a readily identifiable difference in potential loss between Sapphire Ice and investment-grade life insurance, which may influence your purchasing decision.
