The Fungibility of Permanent Life Insurance

Fungible is derived from the Latin verb fungi which means “to perform”.  It has no relationship to the Latin word fungus, and its plural fungi, which include varieties of mildews, molds, mushrooms, rusts, smuts, and yeasts that, under certain circumstances, can be beneficial but are more often associated with plagues, disease, and crop failures. 

In the legal sense, things that are fungible can be exchanged equally without a loss to either party involved in the exchange.  For example, an ordinary $100 bill is worth exactly what any other ordinary $100 bill is worth and therefore can be exchanged without any transfer of value. In the same manner, gold is fungible with gold, silver with silver, etc.  

According to Merriam-Webster’s dictionary, fungible means “a part or quantity which can be substituted for another of equal value to satisfy an obligation.”

When it comes to permanent life insurance, one permanent life insurance policy is NOT fungible with another permanent life insurance policy.  The reason for this is because every permanent life insurance policy is distinct and completely unique from any other permanent life insurance policy. In other words, permanent life insurance policies are NOT interchangeable and cannot be substituted one for another because each permanent life insurance policy has its own specific value.

The type of permanent life insurance policy also plays a role in the value determination.  A whole life policy has a cash value which is guaranteed, contractually, to grow for the entire lifetime of the contract.  Universal life policies don’t provide this contractual guarantee.  Whole life policies can guarantee cash value growth based on the equity which whole life policyholders generate in their policy over time.  Universal life insurance policyholders NEVER generate equity in their policies.  Despite these marked differences, both whole life and universal life policies are classified a permanent life insurance. This leads to confusion and financial losses for policyholders who are not able to discern the differences between the types of permanent life insurance.   

When people think of something permanent, they expect that something to be enduring, lasting, even perpetual.  But when it comes to life insurance, only one permanent life insurance product fits those expectations, and that is whole life insurance. 

Thus, classifying both universal life and whole life insurance as permanent products, has, and continues to be, confusing to the public.  So confusing that hundreds of millions of dollars have been paid by insurance companies to settle law suits filed over the lack of permanency in the universal life insurance policies they have sold.  Furthermore, there are current law suits which have been filed to challenge the “false” claims of insurance companies who sell indexed universal life insurance.

The problem with these universal life insurance products is the insurance companies have attempted to, “Un-bundle the savings element and the life insurance element of a whole life policy---something that can’t be done, if one understands the concept of whole life insurance.  Yet today, index universal life insurance has become one of the products sold by the life insurance industry. How many more millions will the insurance companies, who sell these products, pay in lawsuits before they stop confusing the public with their misleading marketing?

At Life Benefits, we understand that permanency implies perpetuity to most people.  That’s why we developed the Perpetual Wealth Code, a money management system which uses dividend paying whole life insurance to allow policyholders to perpetuate the use of the money they spend so they can use that money over again, just like bankers do.

The Perpetual Wealth Code uses the Infinite Banking Concept, which R. Nelson Nash outlined in his book Becoming Your Own Banker, but encourages velocitizing money, like bankers do, to create a higher volume of interest retained.   

Velocity Banking, a strategy which uses a bank loan (line of credit) to create the velocity needed to overcome a loan or a mortgage faster, makes some very bold value assumptions which may, or may not, be fungible.  The Perpetual Wealth Code overcomes these value assumptions by using the guaranteed interest only option, for loans taken against dividend paying whole life insurance, to create the velocity needed to capture the volume of interest in any financial transaction, not merely just a loan or mortgage.

Cash value in dividend paying whole life insurance is fungible, meaning, it can be leveraged to access the use of the insurance company’s money on demand while leaving the policyholder’s money free to grow according to the guarantees provided in the whole life insurance contract. This guarantee, built into whole life insurance contracts, provides a “tail-wind” to everything else a policyholder chooses to do financially. This “tail-wind” is simply not available anywhere else in the financial world without having to pay fees, penalties, or become subject to margin or premium calls.

Fungibility is a key factor in why dividend paying whole life insurance is an important part of a financial portfolio. Nobody should be without it, but few ever learn why.  To find out if you qualify to own dividend paying whole life insurance call 702-660-7000.