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Many find whole-life projections not panning out


Many holders of whole-life, or cash-value, life insurance policies are being rudely surprised.

They're finding that the policy's cash value and dividends aren't growing as projected by the nifty computer simulations provided by sales agents. Whole-life insurance, like term insurance, provides a payment when the insured dies. But part of the premium is invested by the insurance company and slowly builds value that can be converted to cash that the policyholder can use.

Standard industry practice has been to use current interest rates or insurers' past investment results to project how much a whole-life policy will be worth in future years or when the cash value will be big enough so that dividends would cover the annual premiums on the policy. Many projections, it turns out, were wildly optimistic.

"The result has been an increasing number of confused, disappointed and angry policyholders," said Kernan King, head marketer at New England Mutual, a Boston insurer.

As interest rates slid over the last decade, insurers' investment returns have declined below those in old projections. In response, New England said this week that it would change its sales information.

Illustrations on the buildup in cash value or on future dividends will now be based on varying scenarios of returns -- the current yield, a higher yield and a lower yield. Also, New England's illustrations will prominently show the policy's guaranteed minimum value, a less-impressive result than any of the other scenarios.

Two lessons pop to mind.

First, think of insurance primarily as protection, not an investment.

Second, all consumers and investors should be skeptical of projections, especially those for more than a year or two into the future.

This problem will arise among mutual fund customers, too. Some funds have sold shares by trumpeting past investment results without stressing to investors that such returns are not certain to be repeated.

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