Mutual Interest

With the average length of retirement now 13 years, the threat of inflation means that the cash value of a family's life insurance could well prove inadequate to its old-age needs. As a hedge, more and more Americans are turning to mutual funds, which, after all, promise growth instead of fixed returns. Rather than fight the swing to mutuals, the insurance industry itself is enthusiastically joining it.

A year ago, some 20 U.S. life-insurance companies were in the mutual-fund business. Today, the number exceeds 50. Last month Boston's John Hancock became the biggest insurance company to get into the act by announcing its own mutual fund. Last week Illinois-based Franklin Life Insurance Co. said it plans to acquire control of California's Channing Financial Corp., a holding company with properties in both mutual funds and insurance.

$50,000 in 20 Years. Such diversification, says John Hancock President Robert E. Slater, is a response to the fact that "the marketplace is saying it wants more equity investments." To get that equity, the public has shown a mounting interest not only in mutual funds but also in individually selected securities and even ordinary (but interest-yielding) savings accounts. As a result, life insurers have been drawing an ever smaller share of the average American's savings dollar -- only 19% in 1966 v. 52% in 1946.

In the face of those statistics, the mutual-fund business is a welcome new sideline for insurance firms. A case in point is the relatively small Life Insurance Co. of Virginia: in the first ten months after launching its own First Fund of Virginia, its agents sold $900,000 worth of shares. Besides opening new markets, Michigan-based Federal Life & Casualty Co., a Channing subsidiary, has found that the mutual fund helps agents sell more insurance. Much of it, to be sure, is of the low-cost term variety that expires when the policyholder reaches a specified age. The fact that such insurance has no cash value, notes Federal Vice President H. Curtis Reed, does not bother investors "who expect to accumulate $50,000 in mutual funds at the end of 20 years."

Although it has no plans to sell fund shares, Prudential, the nation's biggest life-insurance company, is considering making available variable annuities, which are presently sold only through group-pension plans, to individuals as well. Unlike the ordinary annuity, an in vestment that pays off in regular fixed payments after a certain age, the return on a variable annuity is affected by fluctuations in the market value of the securities on which it is based. For the inflation-wary investor, such annuities thus figure to hold many of the same attractions as mutual funds.

One-Stop Planning. As insurance companies scramble to train their agents to sell mutual-fund shares, a lively competitive battle is shaping up. The going could be particularly rough for companies that set up funds from scratch, since many investors will presumably want to deal with established funds with well-documented performance histories. Insurance men are confident all the same. Many see their new sideline as a long step toward "one-stop financial planning" in which investors will welcome the opportunity of dealing with a single all-purpose agent rather than with rival insurance and mutual-fund sales men. And when it comes to finding customers, says Collins Graham, director of Boston's Boit, Dalton & Church insurance agency, life-insurance companies "have potential business staring them in the face through the millions of policyholders now on their books."

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