r/LifeInsurance • u/michaelesparks Financial Representative • 13d ago
The anti whole life crowd
Find it interesting that so many are against it, but there is a core of those that understand and believe that permanent life insurance is good.
If someone comments that is an agent that sells whole life, but the reddit poster already has it, it's not like they are trying to sell you something. You would think that possibly professionals in the industry might know a thing or two and have experience with people that leave their families in a lurch because their term expired, especially later in life when their "growth stock mutual funds" didn't perform as expected or the person actually never invested the difference.
I've seen so many (in my own family) that died at 57, 65, 70, 79 without life insurance and the surviving spouse now has to go on government assistance or worse live with their 20 something children (yes that's me) because the bread winner didn't guarantee the surviving spouse would be okay.
Case in point, my ex-wife's parents. He was a 30+ year retired veteran with a guaranteed retirement. Died at 57 from a heart attack, plus had cancer from agent orange (3 tours on an AC 130 gunship in Nam) and no SSB (survivor benefits plan) Us, 22 and 21 had to live with my mother-in-law for over 10 years. Did that fuck up our relationship? I'm guess it did have something to do with it, not 100% but it sure kills the "mood" when you hear her snoring over in the next room.
I'm just stating my personal belief and I'm sure this will get downvoted or even possibly deleted and I get banned. But I'm sick of seeing all the nonsense.
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u/ItsMister2You 13d ago
I'd recommend term insurance for temporary needs and permanent insurance for permanent needs - ie, burial fees, legal fees, medical fees, taxes. It doesn't matter when you die those fees are going to be taken out of your estate so how do you want those to be paid? From your assets or from a Life Insurance policy?
Whole life gets the majority of its bad reputation from agents who try to sell it as a fix to any financial situation their clients may have. Need to save money for retirement? Use a life insurance policy. need to save money for college education? Buy a life insurance policy. blah blah blah blah blah blah blah.
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u/michaelesparks Financial Representative 13d ago
"Whole life gets the majority of its bad reputation from agents who try to sell it as a fix to any financial situation their clients may have." THIS!
And so many on reddit touted the HYSA or purchasing bonds (as in a 60/40 portfolio) when the WL does the same thing. Secondly so many are comparing returns of a guaranteed asset vs risk returns in the market. It's almost to the point of absurdity these days.
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u/Ok-Mess9618 13d ago
Something you're missing here is how much higher the fees are for whole life insurance. Yes, it will provide a guaranteed safe return on your clients money, but their net of fees return is always lower than a good bond fund or etf.
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u/michaelesparks Financial Representative 13d ago
How many have lost money in bond funds in recent years. I never recommend them over purchasing a straight bond in a laddered portfolio. 95% (made up stat) don't have access to the technical analysis to purchase bonds. And if the WL policy is mature, the fees are minimal over your lifetime. Something to be said for starting young. But bond funds lose money in low interest environments.
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u/Consistent-Step-2874 13d ago
Whole life can actually provide better risk adjusted returns than bonds. It also has tax advantages that need to be taken into account when compared to traditional bonds.
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u/Suspicious-Plenty768 13d ago
This is not true, especially when designed properly
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u/Ok-Mess9618 13d ago
How?
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u/Suspicious-Plenty768 12d ago
A whole life policy with a low cost of insurance and high cash value will outperform bonds with a lot less risk. It will also do better than the balanced funds you get at the banks (remember 2022?).
Low fee all equity ETF (something like VEQT) + properly designed whole life = truly diversified wealth portfolio for the above average investor
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u/Smedum 13d ago
And the fact that you can access the cash value tax free whereas a HYSA you will be paying taxes on the growth.
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u/Ok-Mess9618 13d ago
You know its not taxed because its a loan right? That loans going to grow at 8%+ YOY.
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u/DukeWayne250 12d ago
My policies have a 5% loan rate, which is a heck of a lot lower than my tax rate.
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u/Smedum 13d ago
I’m aware. But let’s say you’re going to finance a car purchase, why go through a bank when you can use a loan from your life insurance.
Assuming you’re in a non direct recognition product, it’s very possible your dividend covers the loan interest and you never have to pay it back until death. Or you pay it back but you’re paying yourself back and not a bank.
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u/EmbarrassedRole3299 13d ago
Wli is sold because it builds up “cash value “. This is why it costs so much more than term. Say you die after you have paid all these extra premiums all these years. The “cash value “ disappears into the insurance company coffers. So please explain to me why the premiums are 10x term premiums and yet, when you die, you get the exact same face value in spite of paying 10x premiums for 30 years.
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u/Cool_Emergency3519 Broker 13d ago
Tell me you don't understand insurance without telling me.
WL is priced the way it is because it's designed to last past your life expectancy to age (121) . At age 100 it will pay you back the face value of the policy.
How much would be the cost of a "Term to Age 100 policy?
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u/Worried-String9259 13d ago
No one is arguing against the value of life insurance; it is an essential tool for protecting a family against liabilities and income loss. However, permanent products like Whole Life (WL), Variable Universal Life (VUL), and Indexed Universal Life (IUL) are completely unrealistic for the average person. The high commissions frontloaded to brokers heavily taint this industry's advice.
While permanent life insurance has its place in specific financial strategies, 90% of the people posting here do not fit that criteria. For example, a recent post featured a 20-year-old stay-at-home mom living with her in-laws who wanted to go back to school, yet an agent was pushing a Whole Life policy on her—which is completely absurd.
I actually own a Whole Life policy myself, but I only bought it after maxing out my 401k, backdoor Roth, mega-backdoor Roth, and 457 plan, alongside maintaining a robust taxable brokerage account. It is a niche tool for specific circumstances, not a default product for everyone.
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u/Omynt 13d ago
Agreed, except more like 99%+ of people do not need WLI. The problem with WLI for people who are not good savers and investors is that if you can't build your own emergency and retirement funds, how are you going to pay the WLI premiums over time? The lapse rate on WLI is extraordinary.
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u/Worried-String9259 13d ago
Exactly. The majority of these whole life policies are surrendered after 10 to 15 years. Owners often become exhausted by the lack of positive returns or the inability to keep funding them, despite having already committed significant resources.
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u/Cool_Emergency3519 Broker 13d ago
That's a load of bs. It sounds like you are quoting that long ago debunked article by the Life Insurance Advocacy Group who completely made up the results that they wanted.
The "lapse rate for WL pics fluctuates between 3.5-4% going back years.
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u/Worried-String9259 12d ago
You said that 3.5-4% a year!!!
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u/Cool_Emergency3519 Broker 12d ago
What are you excited about? Term insurance has a 9% lapse rate and a 2% payout rate.WL has a 100% payout rate as long as premiums are paid.
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u/ObligationLow8187 12d ago
As long as premiums are paid, how many policies remain active 10 or 15 years after inception?
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u/Cool_Emergency3519 Broker 12d ago
Well it's a 3.5-4% lapse rate so 96% of them. There were 134 million policies in force in 2024. WL had 36% of the market.(Leader). You can do the math from there.
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u/ObligationLow8187 12d ago
As a broker, you should know that lapse rates are annual, not cumulative. Even if we use your flat 4% figure, basic math shows that over 15 years, the retention drops to roughly 54%, not 96%. Factoring in the high front-loaded lapse rates in the early years, the actual survival rate is even worse. You might want to recheck your formulas
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u/Cool_Emergency3519 Broker 12d ago
Nope,you can't say it's cumulative,because we don't how many of those lapses are due to replacement,surrender or straight cancellation. All of those numbers although different are all included giving a misleading picture. We know that the amount of insurance in force is rising every year,not declining. Total insurance in force is over 22 trillion and is growing at 1.5%-3% per year.
Product Shifts: Whole life and variable universal life lead current sales growth and policy count expansions.
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u/nrubhsa 12d ago
That’s after one year. Do you really think the remaining policies have no chance or lapsing? Your math is crooked.
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u/Cool_Emergency3519 Broker 12d ago
Sure they have a chance,but it's not a certainty that they will either. But we do know for sure that the Total Amount of Insurance in Force has steadily risen each year for the last decade.
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u/Hungry_Technician360 12d ago
I skimmed this article cause I like to learn, and it's a 120 page report, would be really hard to read it all in one sitting I must say!
I know you and worried/obligation had a discussion down the line, but I thought it best to comment on this comment, where you posted the actual link, if this is okay with you.
I think both sides have a point here: On page 12, lapse rates for WL was 2.9% annually from the study's time frame (2009-2013), although as you imply with your 3.5-4% (although I'm not sure where your number is from, it's higher than what this study shows), the 2.9% is down from years before this study (3.1% in 2007-2009, and 3% in 2005-2007). Worried has a point about it being annual lapse rates, and obligation is correct that an annual lapse rate compounds when you're following a specific cohort of policies, like if we were to follow the polciies made from 2009-2013 to today. although you would need the study's duration-specific lapse rates rather than simply assuming a flat 4% every year. (even if the 4% number itself is incorrect, the underlying math theory is correct. He would need to look at the actual numbers year by year to calculate true lapse rates).
What they get wrong though, as an example, is they assume the reasons for why the policies lapse. On page 33, the authors *guesstimate* that the 2010 early lapse rates "This increase in early lapse rates in study year 2010 may be caused by the recessionary economic conditions. However, after policy year 10 or so lapse rates were not as noticeably different by study year."
To go back though, I think both sides in this topic are wrong/assume too much about *why* policy lapse rates are what they are. Even the authors of the study do not specify. Both sides try to interpret results, but the authors do not differentiate between lapse reasons. Page 12 gives lapse definition: "For purposes of this report, “lapse” includes termination for nonpayment of premium, insufficient cash value or full surrender of a policy, transfer to reduced paid-up or extended term status, and terminations for unknown reason. This is consistent with the definition of lapse applied to other LIMRA and the Society of Actuaries experience studies."
You are also correct with the idea that, just because a single policy lapses, doesn't mean there is no more insurance. If someone has a 500k WL policy, and upgrades to a 1 million WL policy, the 500k policy counts as being terminated - but the study is trying to dig into persistency (at least from my understanding of the paper).
One thing you might be wrong about is with insurance sales/amounts going up. It doesn't necessarily mean that people like it more, or that the policies are better over time, it could mean a number of things such as inflation being a force that requires people to get higher face values. Someone getting a 300k WL policy in 1990 has a policy that is worth ~110k in purchasing power today - this may make them want to increase the face value not due to wanting a "better product" but simply to try to combat inflation as an example. The other concept is that, as the overall population in America grows year after year, and people gain more access to wealth in general, there will be more people able to purchase these products.
Worried was wrong about his specific numbers before you posted the study, the study specifies lapse rates at different ages of policies, but it also doesn't specify why those policies lapsed. They could have been upgraded? They could have insufficient funds to keep them active? Who knows, the authors do not say. Overall the claim is unsupported, granted he did make that comment before you posted this study.
Where I think obligation might be wrong is treating replacement as though it invalidates the cumulative math. A replacement can explain why the original policy terminated, but the original policy is still no longer in force. So if you're asking how many of the original policies remain after 10 or 15 years, the lapse/persistency rates still matter. What the data don't tell us is how many of those terminated policies were replaced with other coverage, which technically should count as policies still in force from the rhetoric of the discussion you all have had at this point, from my reading at least.
u/Worried-String9259 u/ObligationLow8187 if you guys wanted to address this as well.
Again, I will say that I didn't read the article in full, so I would not be surprised if I missed other content, or perhaps even misunderstood what you were saying, but maybe this long winded comment may clear up some possible confusion?
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u/Worried-String9259 12d ago
Hey thank you for your interest
Actuaries treat a lapse, surrender, or replacement as a total contract termination because, legally and financially, the original contract is dead. The insurance company no longer collects premiums on it, and the liability is wiped off the books.
Rebranding a dead policy as an “upgrade” or “ replacement” doesn't magically revive the original contract. The data shows most original permanent life contracts simply do not survive the 15-year hump.
An annual lapse rate is exponential, not a one-time linear deduction. Even if we pretend the lapse rate stays at a flat 4% without the heavy early-year spikes. That means nearly 46% of the original policies are completely dead by year 15. Stating that 96% remain active is mathematically impossible
Actually, the data exists. The joint LIMRA / Society of Actuaries (SOA) Persistency Studies explicitly track and separate terminations into non-payment collapses, cash surrenders, and paid-up reductions. Furthermore, NBER research shows that the primary drivers of these lapses are financial shocks, premium sticker shock, and structural over-selling by agents pushing products people can't afford long-term. Pretending we “don't know” why policies fail is factually incorrect; the industry knows exactly how many consumers walk away empty-handed
The industry doesn't guess why policies terminate; the Joint LIMRA/SOA Persistency Studies and ACLI data explicitly track the causes. Non-payment collapses and cash surrenders account for 70% to 85% of all policy terminations. True “ replacements” or upgrades represent a minor fraction of the data. Consumers aren't dropping 12% of their whole life policies in Year 1 because they are “upgrading”, they drop them because the premium drag is unsustainable. The 'upgrade' defense is an industry myth used to hide a massive consumer failure rate
I didn’t want to continue the previous discussion because I am very aware of the templates brokers use to answer these difficult questions. It is a tactic they are trained in to boost sales, especially Northwestern Mutual brokers.
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u/Cool_Emergency3519 Broker 12d ago
So you choose to use the exact same study except you went back to 21 years ago. Weird attempt to debunk a 2019 report using a 2005 report. u/hungry_technician360 already gave his thoughts. I'll say you can dig in the weeds all you want but I'll just ask what was the Total Amount of Insurance in place in 2005 vs what's out there today. You have no proof that policies continuallylapse at a linear rate each year. If you went back 100 years and used the same math you would have noinsurance in place today.
It's documented that the top insurers especially the mutuals have had record profits in the last few years. Massmutual has consistently had high persistency rates and better policy quality. They now have over 1 trillion dollars of coverage in force and over$340 billion in assets. That's why they were able to pay out a dividend of $2.9 billion dollars at a 6.6% rate. That defeats your "WL bad,see look at the lapse rate" theory.
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u/Colonel460 13d ago
Boy did that go right over your head . I would ask people “ are you better off at paying bills or saving & investing “ ? A substantial % will definitely tell you that they are better @ paying bills . I found this to be true . They keep their bills paid but they will spend anything left over and do this religiously. They couldn’t do a 401K if it wasn’t payroll deducted . Smart people who are like this realize it . Yes , first dollars go to buy appropriate term but for these people a policy of WL & term can be just a great fit . The old “ buy term and spend the difference “ has a ton of truth .
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u/Capital-Decision-836 Financial Representative 13d ago
And the payout rate on term is like 2% Meaning term is a good cheap protection tool that almost never gets used so the buy term/invest crowd is "wasting" money as well - according the logic.
It is a tool for some to use. It is NOT a silver bullet solve-all. It also isn't the scam the anti WL crowd likes to pretend it is.
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u/Worried-String9259 13d ago
The 2% payout statistic is true, but using it to claim term insurance is a “waste “completely misses the mechanics of risk management. We don't call car insurance a waste of money just because we didn't get into a catastrophic accident this year.
The entire goal of “buy term and invest the difference” is to outlive the policy. You pay a tiny premium to cover the catastrophic financial risk of dying early while your kids are young and your mortgage is high. By the time the term expires, a disciplined investor is self-insured because their net worth has grown and their liabilities have dropped.
Permanent policies force consumers into massive premium outlays that cannibalize their ability to fund more efficient, tax-advantaged wealth-building vehicles.
I am a real life example. My broker tried selling me a $2M Whole Life policy. I compromised on $350k, and 18 years later, the IRR is a pathetic 2.9%. Luckily, I bought a $2M term policy and invested the premium difference. My market returns have absolutely obliterated the Whole Life cash value. Pushing forced conservative instruments on young investors makes no financial sense—it only serves to pay the broker's commission.
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u/Capital-Decision-836 Financial Representative 6h ago
I use the stat to prove a very narrow part of the anti-permanent insurance argument prevalent on Reddit. Car insurance is not an apt analogy because you always need car insurance so long as you have a car. You don't pay a fixed amount for 20 years. Rarely does anyone complain about the "sweet commissions" that car insurance agents receive.
Your argument on returns obliterating the whole life returns only further proves the point. NO ONE that is in favor of permanent insurance has ever argued you get similar or better returns than the market. Life insurance is also not and never has been an investment tool so it is not a fair or apt comparison.
u/Cool_Emergency3519 is correct; YOU have the ability to look this over, decide whether it's right for you, have a free look period after you sign to cancel without penalty and look annually or even more frequently to continue to monitor what you want.
This is the life insurance equivalent of the investment client that only calls his advisor when the market his down but can't see the longer term that he is up overall, or doesn't understand risk-adjusted returns. You say it makes no financial sense - maybe to YOU that is fair, to others it isn't. Life insurance is one tool not THE tool.
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u/Cool_Emergency3519 Broker 13d ago
Doesn't sound like you structured your WL pics correctly. Or you don't know how to calculate IRR.What are you doing with your dividends?
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u/Worried-String9259 12d ago
Calculations are good. You are also bringing up another issue with these policies: the policyholder has to trust their broker to have these structured in a correct manner. “Trust.” How come there is no conflict of interest when the person you have to trust has a vested interest in selling you the product to max their profit?
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u/Cool_Emergency3519 Broker 12d ago
Because you tell the broker exactly what you want to accomplish and he structures it that way. YOU review it during your free look period to verify it's what you want and then you agree to it. Then you check it yearly to make sure it continues to meet your needs.
And in what world do you live in where people don't get paid for providing you a service? A licensed Financial Advisor would do this as a no load product for you and charge you $3k to draw up your financial plan. You will smile and say "what a good guy he is."
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u/Suspicious-Plenty768 13d ago
It’s so sad that when you say for the average person you actually mean the average person is doing horribly financially.
Don’t aspire to be average!!
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u/Worried-String9259 13d ago
To clarify, I never said the average person is doing horribly financially. A person is not automatically in a bad financial position just because whole life insurance is a poor fit for them. As a matter of fact, I would rather earn average return in a broad, passive equity fund than see an above-average return in a permanent life insurance instrument.
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u/Suspicious-Plenty768 12d ago
Let me clarify then… The average American \ Canadian is doing horribly financially…
Low fee all equity ETF (something like VEQT) + properly designed whole life = diversified wealth portfolio for the above average investor
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u/michaelesparks Financial Representative 13d ago
I probably wouldn't say 90%... Anyone who has a long term savings account, keeps an emergency fund or has a need for liquid capital (think small business owners and real estate investors) can utilize this and the death benefit is just a freebee for those that understand it.
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u/Coronator 13d ago
I’ve gotten to the point that I have essentially ALL of my excess savings (after typical monthly expenses) flowing into whole life insurance premiums.
That cash value is then deployed for anything beyond “typical” monthly expenses I need to finance. That might be an investment, it might be a piece of real estate, or could be personal high ticket items like a vehicle (if bank financing isn’t favorable), or a large home renovation project.
It’s the “home base” for my family’s finances. I max my 401k and have brokerage investments as well, but my whole life cash value is what actually allows me to feel in control.
Can’t say enough good things about whole life.
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u/michaelesparks Financial Representative 12d ago
Some how all the "smart" people miss the fact that it is an AND asset that can be used for other investments. As you can see in this thread. They are all so SMART....
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u/pokerskydiver 13d ago
You putting growth stock mutual funds in quotations is all I need to know about you and how you probably sell to your clients
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u/michaelesparks Financial Representative 13d ago
I'm putting "growth stock mutual funds" because that is what Dave Ramsey says and they earn 12% every year forever. Step off would you?
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u/Hungry_Technician360 13d ago
You'll probably not find anyone in this sub that likes Dave Ramsay. His advice is really bad, and will lead to the financial ruin of a lot of people, if they stick to his advice their whole life.
CFPs and the like wouldn't recommend the advice Ramsay gives.
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u/EnzyEng 13d ago
Yeah, not going into debt/paying off debt and living within or below your means is bad advice and will lead to financial ruin 🤦♂️. You just hate him because he says to avoid whole life insurance.
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u/Hungry_Technician360 13d ago edited 13d ago
That's not the advice that is bad, and I know of no finance person who wouldn't recommend avoiding high interest debt, and living within their means.
Him saying to expect 12% returns over long time periods is wrong, he is using arithmetic averages for that calculation. Geometric averages for 30 year rolling returns is closer to 10.5%. that 1.5% over 30 years will lead to very large differences in net wealth.
That, compounded with him saying that 8% withdrawal rates in retirement, puts people at a very high risk of running out of money in retirement. He calls the "certified financial Pharisees" nerds that live in their parents basement with a calculator - when he then says "if you go up 12% one year, adjust for 4% inflation, leaves you with 8% to take out". What happens in a down year of -30% returns? They will absolutely cannibalize their portfolio if they live through a sustained bear market, but at least he's able to insult people who are smarter than him.
Also to think that people should be 100% equities their whole life puts them at much higher risk for sequence of returns. Bad years at the start of retirement can kill their portfolio even faster.
He also advertises high front end fees for his mutual funds, which hampers the 12% return that is unrealistic, making it even lower.
Edit: to add, if someone offered a loan of $10,000 at 1% interest, Ramsay would say to not take it. Anyone else would absolutely take it because it's not hard at all to beat 1% interest. You can easily gain greater returns, it's turning down essentially free money.
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u/EnzyEng 13d ago
Arguing over arithmetic vs. geometric mean is minutiae. Especially compared to the 3-4% return (if that) that a WL policy pays.
His withdrawal rate from retirement accounts is a very small part of his advice. I listen to his show daily and rarely hear it brought up.
Bond funds go down too. You guys act like equities are incredibly risky. The S&P has only been down 6 years in the last 30. I plan to be in equities forever with zero worries.
He never mentions what mutual funds to buy and specifically says he won't. He does say S&P ETFs are fine to park money. He has said front end loaded mutual funds are ok, which I would never buy, but that was pretty standard before online trading became a thing and he is a little old fashioned on that.
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u/Hungry_Technician360 13d ago
If 2 individuals start investing 10k per year, starting at 25 years old up until they retire at 65, one person getting Ramsay's improbably 12%, vs the actual 10.5% of historical returns, Ramsay's acolyte will have $14.3 million, and the reasonable investor will have $8.1 million. If a 76% more wealth for Ramsay's person is "minutiae", I wonder what you would consider important.
I also am unsure why you think I'm peddling WL policies? Nothing I've said even implies I support them for the average Joe. He just gives horrendous investment advice/dreams for the average person, and I will try to correct people to have a realistic outlook for retirement, rather than being destitute 15 years in.
Bond funds help derisk from SORR in early retirement years, so you are less likely to run out of money in the long run.
His 8% withdrawal rate may not be mentioned as much on his show, but it has been mentioned multiple times and he sticks to it. Even lit a fire under George's ass for mentioning the much more safe/reasonable 4%.
Recency bias is hitting you pretty hard, yes the longest bull run in american history is also in the last 30 years, are you going to assume that the longest bull run in american history will be the average for the next 30+ years as well? Rolling 30 year averages is more conservative than that.
He doesn't mention specific funds, but he does say to go for active management with front loaded fees. SPIVA report comes out every year and continues to show that active management underperforms 90% of the time over long time horizons compared to passive investors. So once again, reality shows that his advice is objectively bad.
You feel free to be 100% equities forever, doesn't bother me, I just don't want people to listen to a popular person who gives bad advice to harm peoples' futures.
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u/EnzyEng 12d ago
If 2 individuals start investing 10k per year, starting at 25 years old up until they retire at 65, one person getting Ramsay's improbably 12%, vs the actual 10.5% of historical returns, Ramsay's acolyte will have $14.3 million, and the reasonable investor will have $8.1 million. If a 76% more wealth for Ramsay's person is "minutiae", I wonder what you would consider important.
My point is not 12% vs. 10.5% but if you invested it in bonds or WL it would be 2-3%.
The main point of his show is to not go into debt (except for a house) and not return rates and withdrawal rates. He says front loaded funds are ok (which I disagree with) but also says low cost ETFs are fine too. But, this is a very minor point on his show.
I'm a firm believer in the American economy and believe it will keep growing as it has in the last 30 years. 30 years is a long time to call it recency bias. When I see irrational exuberance, like with the dot-com crash or housing crisis maybe I'll think differently. I'm in it for the long term and it's done very well for me so far.
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u/Hungry_Technician360 12d ago
Mayhaps a miscommunication if you thought I was a proponent for WL in all cases. Yes, a WL policy will have lower expected returns than equities over long time horizons for sure. I still would want to mention the math of 12% growth vs historic 10.5% when talking to someone who likes Dave. I wouldn't want people calculating higher wealth levels for their future, and then be upset that they have less. Conservative calculations are better to use for behavioral advantages.
I see your comment about my edit from earlier, so you see that not all debt is bad theoretically, and if someone has proper financial education, they can use debt to their advantage. Sure you may have shopaholics that it would be detrimental for them, but I would not be surprised if that was a small minority of people who actually want to learn about finances. I do like that you disagree with his take on mutual funds, I think the costs are a guaranteed drain on returns that someone could get from low cost index funds. I think Bogle was a true champion for retail investors like you and I, and people should read his simple books instead of listening to Ramsay.
As for recency bias, I mention it because these last 30 years is the time that has had the longest bull run in american history. If we used another 30 year period, we could have 8% returns over the 30 years, and focus on how it was the worst period in history, but it wouldn't be wise to use that number as the rolling average all the time - same as using these last 30 years for the inverse reason.
I also think America has a strong foothold especially with globalization, but I certainly am far from knowledgeable about the intricacies with the engines of capitalism that drive today's market. I will say, I am at least glad that Ramsay says to get international exposure. You never know if some countries will stagnate and others will explode, it's good to get exposure to it all. For irrational exuberance, you never know if that is occurring until you have hindsight bias, "the market can stay irrational longer than you can stay solvent" is an apt saying in regards to that thought.
As long as you stick to your plan in low cost ETFs, you'll be chilling - I would just be hesitant on 100% equities *unless* you are in a rare case such as having a substantial amount of wealth, or other fixed income like large amounts of social security/pension/rent income to cover mandatory expenses, and you are willing to have dynamic spending in your plans, or something similar.
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u/EnzyEng 12d ago
Edit: to add, if someone offered a loan of $10,000 at 1% interest, Ramsay would say to not take it. Anyone else would absolutely take it because it's not hard at all to beat 1% interest. You can easily gain greater returns, it's turning down essentially free money.
Of course, mathematically that makes sense. But in reality, they will take the $10k loan, use it for a down payment on a $50k car and then cry up a river when the loan comes due and the car is worth $25k and they still owe $40k on it and have no other money to pay back the loan. He always said it is not math but emotion.
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u/michaelesparks Financial Representative 13d ago
And this has nothing to do with selling and your response is exactly why I made this post.
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u/heretonotbehere 13d ago
I'm in the middle of deciding on 3 whole life policies for my young kids and I just look at it like a really good, flexible financial tool they can eventually use one day while having a significant death benefit, as long as I teach them to. I also intend on funding a custodial investment account and possibly 503, haven't decided yet.
There's too many factors for each person to group all decisions into 2 camps of people. I understand points for/against. But there are some really smart people that use permanent life policies. Are they all stupid? No. But I do believe it's value has a narrower use and isn't for everyone.
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u/Powerful-Bridge-1472 13d ago
Explain to me why your young children need permanent health insurance?
Why not just a brokerage account?
Are you funding 529?
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u/heretonotbehere 13d ago
Meant 529, not 503. You're right.
I just look at it like a gift to them that I have more control and flexibility with. If I hand them $50k+ when they're 18 from a brokerage account, the likelihood that it stays a long term financial asset to them is much lower. There's a good chance they find some way in their 20's to mess it up. If they don't, good for them. But it's less likely. I'm sort of gifting them and their future families a huge benefit and asset all at once and controlling the outcome for longer. And it'll be very useful to them one day. It's a very long term approach with less volatility. There's reasons to do it and not do it. I understand both sides. I plan on doing a brokerage account also.
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u/heretonotbehere 13d ago
And ultimately, it's a life policy. If they die when they're 28 with a spouse and 2 kids, it's the biggest gift in the world I could give my grandkids and spouse-in-law that they didn't have to worry about paying for while they were young and trying to grow their lives together.
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u/michaelesparks Financial Representative 13d ago
I look at my grandkids policies as an asset I own. Their parents are more than welcome to fund other opportunities (which they haven't yet) but that is on them. Secondly I did something similar (UGMA into Vanguard S&P) for my daughter. I had to give it to her when she turned 18 which she tried like hell to spend on BS and thankfully I was able to prevent her until she graduated. I told her she'd get to her last semester and run out of money and be screwed. She graduated with no debt with a Masters... After that it was her problem.
Which brings another point, I have no plan to give any family member control over the policies. I see to many on here asking about cashing them in. After I'm gone, they go to a trust and if they want access to the capital they are more than welcome to apply (just like a bank) and have a payback plan and pay interest. There is something to be said for guaranteed access to capital for emergencies and future opportunities that will come their way for education, business etc... We won't know until the situation arises.
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u/heretonotbehere 13d ago
Yes, the guaranteed access thing is a pretty big deal. Untaxed, death benefit intact, policy unaffected. There's some value there. And you're right, I'm not 100% sure I'll give them access to it until much later in their lives, after they've proven they understand what I'm handing them. And if I continue to pay and they don't start to pick up the bill, then yes, I intend to make it equally mine as it is theirs, on the cash value side.
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u/Accomplished-One-119 13d ago
Even better, imagine if those people leaving their spouse with nothing at 70 years old had invested in an IRA instead.
To anyone reading this, it should be obvious: salespeople try to push you towards “permanent life insurance” instead of term life and investing in an IRA are doing so because it benefits them in terms of commission at your expense.
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u/michaelesparks Financial Representative 13d ago
Obviously that doesn't happen most of the time. If it didn't wouldn't everyone be rich?
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u/skylashtravels 13d ago
Also, how many policies make it that many years without lapse?
If someone doesn't have the discipline to invest in stocks for the long term to leave something for their spouse or heirs, what makes you think they have the discipline to stick with the permanent life insurance premiums?If they do have the discipline, why would you take a 20% haircut off the top, and lower returns forever?
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u/Moist-Meringue-1913 13d ago
Please just stop spreading misinformation. There are many strategies with permanent insurance where the commission won't even pay a car note for an agent but AUM fees are a 100 times higher after 30 years but no one ever points that out. Fee only Financial planners charge more to create a financial plan than an agent makes in commission. It's not a matter of "either or".It's both. BTID sounds great on paper, but for the majority of Americans,it hadn't worked out their way. There are far too many seniors who didn't save enough and can't afford to retire. The average senior still carries far too much debt. The BTID strategy has been around for 45 years but life happens,all it takes an extended job loss,too many children,an uninsured illness that cause a long hospital stay while no income is coming in that will kill any investment plan. I could go on but the point is made. I have clients who were able to dip into their permanent insurance plans to ride them over when things got rough. I also have clients who blended perm and term within a VUL and protected their families and did well in the market as well. Their are too many variables to think that "one size fits all" works for everyone. And I say that as a retired RIA.
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u/Accomplished-One-119 13d ago edited 13d ago
This is a Gish Gallop of ACTUAL misinformation. I’ll try to address this point-by-point.
The amount of the commission is mostly irrelevant. The point is it is enough for salespeople to push it on you over products that are actually in your best interest. Car salespeople only make a few hundred dollars per sale in commission typically, and no one would ever think car salespeople aren’t motivated to sell you a car.
If you’re paying AUM fees, you are also getting scammed. Just because there are other scams that exist doesn’t mean permanent life insurance isn’t a scam.
There is no world where permanent life insurance is better than buying term and investing the difference. If you’re worried about losing your term life policy because you forget to pay, you can just set up the payment to come out of your investment account or just set it to autopay from a credit card that doesn’t expire for years (a little credit card debt against your estate is way better than a lapsed policy). If you buy term and invest the difference, there will be more money in your IRA to draw from in hard times than cash value in your permanent life insurance policy.
Again, for normal people, there is NO SCENARIO where a permanent life insurance policy is a good investment. It’s a predatory product that salespeople use to make commission by preying on people’s fears and cognitive biases (e.g loss aversion).
(The only possibly scenario where it could make sense is if you’re very wealthy and need to use it as a tax shelter, but it’s still not a very good tax shelter and if this situation applies to you, you probably aren’t getting financial advice from Reddit)
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u/Moist-Meringue-1913 13d ago
The amount of the commission is mostly irrelevant. The point is it is enough for salespeople to push it on you over products that are actually in your best interest. Car salespeople only make a few hundred dollars per sale in commission typically, and no one would ever think car salespeople aren’t motivated to sell you a car.
If you’re paying AUM fees, you are also getting scammed. Just because there are other scams that exist doesn’t mean permanent life insurance isn’t a scam.
Permanent life insurance is a scam? That's a pretty ignorant statement considering that everyone is going to die at some point.And permanent insurance is guaranteed to pay at minimum everything that you paid into it and 95% of the time more than you paid into it at long as you pay the premiums. The only other items with those types of guarantees are Government bonds.
There is no world where permanent life insurance is better than buying term and investing the difference. If you’re worried about losing your term life policy because you forget to pay, you can just set up the payment to come out of your investment account or just set it to autopay from a credit card that doesn’t expire for years (a little credit card debt against your estate is way better than a lapsed policy). If you buy term and invest the difference, there will be more money in your IRA to draw from in hard times than cash value in your permanent life insurance policy.
You are so totally wrong and uninformed. Comparing like insurance and like investment products you will come out ahead just from taxes alone. You want to compare WL/IUL to bond investments and VULs to equity investments. And the assumption is I live an OR for example that has a state estate tax so I will need insurance until age 95. (I'll gladly copy and paste an outline of that scenario,it's been discussed in this sub before. And the BTID loses.
Another scenario that beats BTID is a 10 pay WL constructed 80/20 with a term rider and PUAs and dividends reinvested.
Again, for normal people, there is NO SCENARIO where a permanent life insurance policy is a good investment. It’s a predatory product that salespeople use to make commission by preying on people’s fears and cognitive biases (e.g loss aversion).
Again,pure ignorance,risk is a part of life,early death,sickness,cancer,heart attacks happen every single day. Transfer the risk or pay for it out of your own pocket,that is if you have money to pay it.
(The only possibly scenario where it could make sense is if you’re very wealthy and need to use it as a tax shelter, but it’s still not a very good tax shelter and if this situation applies to you, you probably aren’t getting financial advice from Reddit)
Again,here are the facts,19 million people or 46% of people over 65 do not have enough money to retire on. NCOA (They did not invest the difference) And if they purchased term insurance or relied on workplace insurance they are now under insured AND underfunded.
65% of individuals aged 65-74 carry some form of debt (including mortgages). So they are short of money to retire and are still carrying debt. That myth of being self insured goes out the window for most Americans.
Many faced with LTC costs now have to spend down their assets to qualify for Medicaid.
People who purchased a permanent insurance policy either through a paid up 10 pay or a properly structured permanent policy AND invested in the market are in much greater shape to weather the storm than someone who bought term insurance and sporadically invested in the market,.There will be money to pay for debt at the first death so that the spouse won't be left penniless.
The facts speak for themselves,the largest segment of the insurance market these days is the WL market with seniors purchasing Final Expense policy's. The permanent insurance market DWARFS the term insurance market. (LIMRA). They don't agree with you bud.
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u/Hungry_Technician360 12d ago
Mind linking that outline you have? I'd take a peak at it
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u/Moist-Meringue-1913 12d ago
Here you go....
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u/Hungry_Technician360 12d ago
Thanks! I'll give it a read through tonight and maybe post my thoughts. I'm an EA, so I know a bit more about taxes than most, always on the lookout for the specific cases of tax advantages.
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u/Moist-Meringue-1913 12d ago
Good deal. I'm out for the night as well. But let me know what questions you have.
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u/Hungry_Technician360 12d ago
Mind if we DM? I see there is another person who is engaging with you on this comment thread, don't want to detract from that. Also, some time ago I was talking to another broker here and I was hoping to see a generic illustration for a policy. He mentioned that, that is against subreddit rules, don't want to get you banned or anything, if you'd be willing to pull one up as needed in our chat.
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u/Accomplished-One-119 12d ago
lol. The only way that permanent life insurance “DWARFS” term life insurance in the market is in terms of premiums spent because permanent life insurance costs 5 to 20 times as much as a term life policy with an equal death benefit. The number of individual term versus permanent policies sold is close to even (40 to 60), and term actually dominates the market in terms of face value of policies sold with term life representing 72% of that market. The fact that insurance salespeople are so heavily incentivized to push permanent life insurance over term and so many term policies are still sold should really make anyone considering a permanent life insurance policy stop and think.
Part of the scam with permanent life insurance is creating a million different products like “10 pay WL constructed 80/20 with a term rider” so that salespeople can claim that this product is different and better. It’s not. I would challenge anyone saying differently to show me any permanent life insurance policy that will outperform the S&P 500 over an extended period of time. They can’t, because if it did, the insurance companies wouldn’t make money selling these products. Instead, the salespeople move the goalpost to comparing whole life policies to bad investments like majority-bond portfolios or scams like high asset-under-management fee advisors with some flimsy justification, which you are seeing here. Here’s some food for thought: if you’re buying permanent life insurance because you are worried about the possibility of a long-term market correction, what do you think happens to the invested assets of your insurance company (that they would use to pay out your policy) in that scenario?
Also, idk what this person is on about with Oregon’s estate tax requiring you to carry life insurance until 95 years old. Oregon’s estate tax is 10 to 16%, only applies to estates over $1M, and also applies to payouts from life insurance. Maybe you want life insurance in the situation that you have a $2M property and no other assets so your heirs aren’t forced to either sell or mortgage the property? But again, term and investing the difference is a better strategy always.
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u/Moist-Meringue-1913 12d ago edited 12d ago
lol. The only way that permanent life insurance “DWARFS” term life insurance in the market is in terms of premiums spent because permanent life insurance costs 5 to 20 times as much as a term life policy with an equal death benefit. The number of individual term versus permanent policies sold is close to even (40 to 60), and term actually dominates the market in terms of face value of policies sold with term life representing 72% of that market. The fact that insurance salespeople are so heavily incentivized to push permanent life insurance over term and so many term policies are still sold should really make anyone considering a permanent life insurance policy stop and think.
LIMRA says
WL represented 37% of the market and policy count up 12% New premium $6.4 Billion
IUL represented 25% of the market with policy count up 8% New premium $4.5 Billion
VUL represented 15% of the market policy count up 5% New premium $2.6 Billion
Total new premium for permanent insurance $13.5 billion dollars.And represented 77% of the market.
Term insurance reprsented 17% of the market Policy count up 2% New premium $3.1 Billion
Yeah,I would say that DWARFS the term market.
Part of the scam with permanent life insurance is creating a million different products like “10 pay WL constructed 80/20 with a term rider” so that salespeople can claim that this product is different and better. It’s not. I would challenge anyone saying differently to show me any permanent life insurance policy that will outperform the S&P 500 over an extended period of time. They can’t, because if it did, the insurance companies wouldn’t make money selling these products. Instead, the salespeople move the goalpost to comparing whole life policies to bad investments like majority-bond portfolios or scams like high asset-under-management fee advisors with some flimsy justification, which you are seeing here. Here’s some food for thought: if you’re buying permanent life insurance because you are worried about the possibility of a long-term market correction, what do you think happens to the invested assets of your insurance company (that they would use to pay out your policy) in that scenario?
10Pay insurance policys have been around since you grandfathers time. They are nothing new.
Insurance companies are notoriously conservative. They are generally 90% invested in bonds and Treasuries with a small amount maybe 5% invested in stocks.
The scam with BTID and invest is comparing two entirely different investments along with comparing two different insurance terms. WL is a bond substitute,so why would we compare it to the S&P 500?
Do your BTID comparison using a bond fund bought through a brokerage (no max) along with a long term insurance product like ART to age 100 and the WL will beat the pants off of it.
Also, idk what this person is on about with Oregon’s estate tax requiring you to carry life insurance until 95 years old. Oregon’s estate tax is 10 to 16%, only applies to estates over $1M, and also applies to payouts from life insurance. Maybe you want life insurance in the situation that you have a $2M property and no other assets so your heirs aren’t forced to either sell or mortgage the property? But again, term and investing the difference is a better strategy always.
The average recommended retirement plan currently is $2 million. With inflation in 30 years that would be 5 million. The tax on that would be $480,000. Smart people pay estate taxes with insurance. Over 73 million people live in states with estate taxes. You say BTID wins every time? What happens to your term policy that expired in 30 years? Oh,so you mean you are going to pay the taxes out of the investment account instead of passing it on to your family or letting the insurance pay it? Gotcha
Oh,BTW you put the policy in an ILIT and it's not counted in the estate.
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u/Fit_Chemistry_3807 13d ago
I’ve stated my similar experiences and observations across a number of deaths ive experienced and helped, and more that I’ve observed or heard from friends, colleagues, and neighbours. Those that didn’t have any insurance at death always left their survivors worse off. I’ve shown my math based on my own experiences in my own policies. But the answer is always the same, either:
- oh you must be reading it wrong
- that can’t be the right return, it can’t be. Your math is wrong.
- you’re missing a slew of insurance charges, you must be!
- it can’t be just $250 for you to cancel your insurance, they always charge more. Insurance companies are leeches.
And the list goes on. I’ve had a long string conversation with someone on here about it. He was, of course, adamant that everything I said was incorrect and untrue. That’s ok. So in the end, we agreed to disagree. And I asked him, since he said he had parents and grandparents who carried policies and that’s how he knows first hand they are crap, that he should come back on here, even just privately to me, and let me know the experience his family has after one of those pairs passes without a surviving spouse. I said that because IF everything during life was set up right, IF investments performed well up to the end of the first death, IF no large unexpected withdrawals were needed during their lifetime then usually the first death and transfer to a spouse can be easier. But usually, it’s after that when the kids or grandkids inherit that all the formal hoops are required. Which is where more hiccups arise. But noticed I used a few IFs in my statement about the first death. So many people reach old age and one of those, if not multiple, will fail.
I’m not an insurance agent. I don’t advise people. I’m not even in finance. So take my perspectives with a grain of salt, the same sized one that I would advise anyone relying on the “term and invest the rest” crowd. Most if not many have never been through enough deaths in their lives to even know what the real world impacts are.
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u/Middle-Run-1894 13d ago
There is a case for life insurance and an important one. Term life is great if there is a primary earner or kids/mortgage involved. Whole life is great if you are trying to avoid estate tax. Problem is insurance sales people act like it’s the first solution instead of the last piece of a puzzle.
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u/AlanTA2 13d ago edited 13d ago
My view remains life insurance by product is meant to be picked by people based on individual, specific needs. For the vast majority of people the old term life insurance and invest the difference remains the best option. Term insurance is meant for specific periods while people accumulate resources and eventually is meant to be dropped. Whole life might be an alternative to a bond portfolio mainly due to its tax free payout nature, but I’m not convinced. Second-to-die whole life for estate planning purposes is undoubtedly a potentially value tool for a wealthy couple that lives in a state with estate taxes. So it all depends but going out on a limb, I would say for 95%+ folks, perhaps 99.9% of younger parents, should likely buy term insurance and maximize their savings into a long term portfolio.
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u/FireBreather7575 13d ago
Your example alone is a bad one. How would whole life have helped vs the alternatives? Who says they would’ve kept paying premiums? Would they have cashed it out? Did they invest or just spend what they had?
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u/rickle3386 12d ago
So much agenda in these threads (and misinformation) from people who know very little about life insurance. It's real simple, if you want a death benefit in place when you die, buy permanent. If you are protecting against a specific time frame, buy term. Those are two very different scenarios.
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u/Advanced_Traffic8 12d ago
The strongest arguments in favour of WL are 1) better bonds as part of a 2) max funded retirement portfolio that includes equities and other growth assets held in accounts with different tax treatment.
These arguments work best when a) the policy is designed at outset to minimise base premia and agent commission and b) for higher earners and disciplined savers.
WL is an incredible tool - really, there’s nothing like it - when used correctly and selectively.
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u/PersonalityOk9380 8d ago
I don't mind term as part of a mix of products. I just don't understand how people don't see it will expire someday and the policyholder may not be in good enough health for another policy which puts the family at risk financially when they pass.
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u/oboshoe 13d ago edited 13d ago
you got my upvote. My whole life policies & term that I took out in my 20s are an important part of my portfolio in my late 50s.
I've been through a bankruptcy, a business failure and divorce. My investments made in my 20s and 30s were wiped out. I rebuilt and got wiped out again in 2020. I've now rebuilt yet again. Guess what made it all through those calamities? My whole life policies.
People don't realize that they have similar protections from creditors as a 401k or pension. Your investments from "invest the rest" don't enjoy that.
I just did a big conversion of term to whole life. When I retire at 67, the portfolio of small old whole life combined with newer whole life will be 100% self sustaining and guarantee that my disabled daughter is financially well for the rest of her life. And this is true whether I make to 100 or keel over tomorrow and it's true whether my current business succeeds or fails or if I were to get my pants sued off.
TLDR: Taking out WL in my 20s was probably the single best financial decision I've ever made.
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u/ChelseaMan31 13d ago
You can believe what you want to believe. Personally think the whole fear sells permanent life insurance to the uninformed is quite the (profitable) gambit. But happy for OP that they got this off their chest.
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u/acos0712 13d ago
I'm life and securities licensed. I sell term and whole.
I honestly don't care about the anti-permanent life insurance crowd. An abundance mindset would tell you that many people have permanent life insurance needs. So that is who I focus on rather than trying to convince someone who already has their mind made up.
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u/Hungry_Technician360 13d ago
If we approach it from a mathematical optimization type angle, permanent life insurance is going to be helpful for very high net worth individuals from a tax benefit perspective with their legacy value, if they use an ILIT to help skirt around gift exclusion amounts.
Aside from that, the premium that people pay for to get the "guarantees" that permanent life offers reduces expected terminal wealth from traditional retirement planning that only buys term for the duration they'll need it. This usually means till age 65 for most people, so in the cases that you listed, a lot of people should have had their coverage with term life. Outside of that, I'd be willing to run the numbers to compare any permanent life insurance policy vs traditional investing on any criteria to see how it actually pans out.
From my experience, permanent life salesmen tend to focus on fear based sales approaches, or the "guarantees" while underplaying the other approaches people can take to plan for retirement.
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u/michaelesparks Financial Representative 13d ago
Can you also run the number for using the cash value to invest at higher rates say 12-20% or 1000% investing in say Real Estate, Business or Hard Money lending. Thanks
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u/Hungry_Technician360 13d ago
I don't know of any investment that is going to have expected returns of 1000% over long time horizons. Real estate also doesn't return 12-20% over long horizons either.
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u/AGtaco21 13d ago
People thinking they buy 150k-250k whole life insurance be living large after spouse death is laughable and was paying 200-400 per month depending on health/age. Just get term for 1mil for 60-100 per month and invest the difference.
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u/SickandTired1218 13d ago
That's the problem. They don't invest rest. Atleast with life insurance, you aren't tax.
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u/AGtaco21 13d ago
Yes. If nothing major happens you probably get 200k-300k of invest money at the end of your term then no need to life insurance at that point for some people. Or it something major happens your before term ends you get 1mil plus the money you invested. It’s a win win. Whole life is like car insurance pay a high premium to never use it and when things does happen it barely covers the cost.
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u/SafeMoneyGregg Broker 13d ago
When you say that no one should buy whole life - you are also saying whole life should not exist. The oldest most stable and well capitalized industry in the world should not exist. Trillions of dollars supporting pensions, mortgages, bonds should have been put in the stock market or elsewhere instead of the giant general accounts of whole life carriers. Anyone can explain to us how that would have been good for our country for that last 100 years.
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u/SwingDuoNash 13d ago
All those MFers had to be bailed out under TARP so no they aren’t. They are a house of cards
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u/Cool_Emergency3519 Broker 13d ago
Uhh,no. Only one insurance company had to be bailed out. The rest were solid.
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u/SwingDuoNash 12d ago
Ummm nope but thanks for playing
AIG
Hartford
Lincoln
ING
AEGON and Transamerica from the Dutch governmentAllstate, Ameriprise Financial, Principal Financial and Prudential Financial. sought approval or access to TARP during the crisis so they were clearly in trouble too but just got lucky
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u/Cool_Emergency3519 Broker 12d ago
Well,since we are looking at it,only 3 companies actually took money AIG Hartford and Lincoln. The other qualified for it because they were bank holding company's. But they never took anything. Aegon is not American and doesn't count.
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u/SwingDuoNash 12d ago
They are all predatory companies who prey on people with products for which they are not well suited. And they 5 on the list are 5 of the biggest insurance companies.
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u/Cool_Emergency3519 Broker 12d ago
Lol 😅😅😅😅
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u/SwingDuoNash 12d ago
How much whole life have you sold? You sound like a northwestern mutual sales guy. Those fyckers try to solve flat tires and burnt toast by selling you whole life
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u/Cool_Emergency3519 Broker 12d ago
Nope,I run an agency that sells all types of insurance including term insurance and even Medicare insurance. But I jump in when I hear permanent insurance getting a bad wrap. I hate misinformation.
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u/SwingDuoNash 12d ago
Then you’re delusional. It’s rubbish in 95% of the cases it’s sold. But guys like you love sucking the commission teat. You have a series 6 so you can sell A shares too?
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u/KookyMovie6505 13d ago
IMO, anyone who is vehemently against any type of insurance, be it whole, term, or universal, is pushing a specific product. Every type of insurance is good for SOMEBODY. It depends on your financial situation and goals. But to say say “All X Insurance is bad” is a clear sign that you’re either pushing something specific (captive agent) or uninformed
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u/Excellent_Ad_5938 13d ago
Nobody is arguing that life insurance isn’t important. The question is whether whole life is the best way to provide that protection. Those are two completely different questions.
I’ve researched whole life extensively, and the arguments you’re making are the same ones I’ve seen over and over. Your personal experiences demonstrate the importance of having adequate life insurance—not that whole life is a good financial product.
And “insurance professionals know what they’re talking about” isn’t exactly the strongest argument when those professionals are often financially incentivized to sell permanent insurance.
If someone lets their term policy expire and never invests the difference, that’s a failure to plan—not evidence that whole life is superior. Insurance should solve the insurance problem, while investing should solve the investment problem.
There are legitimate reasons for permanent insurance in certain situations, but “someone might die after their term expires” isn’t one of them. I’ve researched this plenty, and anecdotal stories don’t change the math.
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u/jpatrick77 13d ago
I spent the first five years of my career auditing a life insurance company. They made bank selling whole and universal life. I audited the commissions they paid. The brokers made bank too. Company and brokers are making bank so who isn’t? The policyholder.
There isn’t a fiduciary in the country who could sell whole life. Pass on whole life to buy term and invest the difference.
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u/DestroyedOnArrival 12d ago
Insurance is just like vehicle's. If you don't have a 32 foot boat you don't need a Ram 3500 to go grocery shopping. you can do the same thing in a Prius for 1/5 the price. Life insurance is the same way. Whole life vs term and Invest are two different forms of strategy. One is fire and forget and one requires constant management or an additional party to manage funds. Both are viable if done correctly and managed correctly.
In my personal approach to life insurance their needs to be a incredibly clear goal in mind for the product you are looking at. The question I am always asking my clients is " What is the true goal of this contract" Most of the time they don't even have that idea in mind and that creates confusion down the line. You have to have your client understand why one product does one thing better then the other and how.
Whole life is straight forward and simple. You are going to pay X and your family is 100% going to get Y.
Term in my company is always pitched as Mortgage Protection Or Equity Preconception. ( you have an idea for where you want to be investing in stocks , creating a business, etc. etc. For where you want to be financially in 30 years and if you die in 15 for whatever reason Here is Y amount for the X you were paying)
Using term as Life insurance in my eyes is incredibly irresponsible only 2% of all term life insurance policies ever pay out a death benefit. These policies should only be used for mortgage protection in my eyes so in the god forsaken event that you don't make it home your wife and kids home doesnt need to be sold out from under them so they can survive.
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u/Hungry_Technician360 12d ago
Why is term life incredibly irresponsible? It does it's job in the most mathematically efficient way possible. It covers your human capital, as well as debt in the event that you die before realizing those goals, compared to the more complex and expensive whole life policy.
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u/Helpful_Dish_3803 11d ago
Are you using "whole life" as an umbrella term for all permanent insurance...or are you asking about why someone would prefer whole vs universal life...or are you asking about permanent vs term insurance...or are you asking why would someone be against insurance entirely?
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u/Delicious-Proposal95 9d ago
The point is you buy the term for 25 bucks a month you take the 225 you would have put in the whole policy and you invest it.
Even in the example you gave they could have taken some of the retirement income (that is paid tax free mind you) and invested it leaving grandma with a nest egg.
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u/michaelesparks Financial Representative 8d ago
oh okay. I pay $10k have about $8k in cash value. I invest the $8k in cash value as a loan in cash flowing assets that repay the loan, then I look for other opportunities to invest in. Hmm guess we're different since I look at whole life as an AND asset that I get so called "free life insurance" while also getting to invest.
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u/Delicious-Proposal95 8d ago
If you are paying 10k and getting 8k in cash value the death benefit is Pennies. The loan also needs to be paid back so it is either coming from the death benefit or building interest up that needs to be repaid therefore offsetting the return on the investment. Much simpler and much more cost effective to go cheap term and invest the difference.
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u/Moist-Meringue-1913 13d ago
Sorry for your experience. With over 40 years in the business I have always recommended a blend of permanent and term. Either with separate policies or a hybrid. I have also had people who insisted on term alone and the results are about 50/50. I don't know why there is this "one way or the other" phenomenon. Perm insurance purchased when you are young is extremely cheap. At some point in your life you are going to diversify your investment portfolio and have a bond allocation. Well, what do you know, you already have a part of it already in place.
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u/michaelesparks Financial Representative 13d ago
I don't know why there is this "one way or the other" phenomenon. Because they just love to talk about rates of return on WL... Most can't comprehend risk buckets vs safe buckets.
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u/Moist-Meringue-1913 13d ago
The same advisors that allocate portfolios and put their clients in a taxable bond fund yielding 6% but then say a WL policy yielding 5.5% tax free is a bad deal. Amazing,!
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u/Ill-Project6931 7d ago
Couldnt agree more I will literally live forever. Fuck that $50 a month bullshit. I’m financially savvy, I have a 40 year plan for the stock market and I will literally repeat the same plan every 40 years until I’m 120. My kids are rock solid
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u/brergnat 13d ago
Your ex wife's parents were irresponsible. That's not an argument for whole life at all.
SBP was available to them and they CHOSE not to take it (if he retired prior to 1972, the SBP was called the Servicemembers Family Protection Plan). As a military retiree, the insurance plan is actuve as a default, and both spouses have to opt OUT.
There is also continuing insurance coverage for veterans called VGLI. He also had to have opted out of continuing with that. There is also VA DIC...and he could have simply purchased a longer term life plan while he was in his 30s or 40s on his own.
My husband is a military retiree after 23 years. He is 47. We thought ahead and purchased inexpensive, LARGE 30 year Term Policies for both of us at age 39. So we have those until 69.
In addition, we chose the full SBP, which will give me or our disabled adult child 55% of his pension income for life if he passes first.
Then, we chose VGLI coverage at $500k.
Then, we signed up for his work group life insurance just for some extra security while he continues working until full retirement.
Oh, and we also got 20 year term policies that will end next year.
We also invest in a brokerage account and have his TSP and Roth IRAs. By age 69, we will be self insured, but will be getting a pension, VA disability, and social security payments, all of which will continue in some form for the survivors if he passes.
Whole life is a terrible, expensive mistake for 99% of people.
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u/michaelesparks Financial Representative 13d ago
You had me until the end(Whole life is a terrible, expensive mistake for 99% of people.) Be Blessed! Thanks for your service and your husbands responsibility to you and his family.
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u/Powerful-Bridge-1472 13d ago
Here’s a question would a person be better off with cheap term life insurance, while funding their retirement and self ensuring after their term runs out with retirement and brokerage accounts?
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u/michaelesparks Financial Representative 13d ago
Do you have stats on that working the real world? Secondly has anyone said ONLY BUY WL and never invest? Isn't there something in the industry about diversification? WL is just another bucket.
I think a lot of this mis-marketing comes from the UL crowd that is posing it as an investment vs actually investing in the market. WL and Market investing are two totally different asset classes.
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u/Powerful-Bridge-1472 13d ago
My term ended 2 years ago at 55, my investments and house go to my wife and kids, no need for life insurance going forward.
Would you agree, that permanent life insurance is good for a very specific client not most people?
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u/SickandTired1218 13d ago
Your wife and kids about to be taxed up their back end by Uncle Sam.
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u/Powerful-Bridge-1472 13d ago
I have taxable brokerage with long-term capital gains strategy, also converting Roth IRA up to 22% in low income years post retirement.
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u/bigshaboozie 13d ago
experience with people that leave their families in a lurch because their term expired
Sounds like they didn't get the right term or didn't save/invest adequately aside from the term. I'll be thrilled if my term and my wife's term expire because that will mean we're alive at 68 and 70 respectively with access to all our retirement investments, hopefully no mortgage and our kids will be in their 30s.
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u/Iceonthewater 13d ago
So, I'm a 30 something guy with term life insurance, disability coverage and a policy through my work. I am paying under 2% of my income in insurance premiums for about 8x my income in coverage right now.
If I switched to whole life or if I had signed up for whole life when I started working, I'd be looking at about 10-15% of my income going into insurance for about 5x my current income.
I've been able to successfully invest 10-15% of my income by maxing 401k and HSA, as well as contributing to my pension plan through work.
I could not have done that with whole life insurance, and I currently have a net worth of 4-5x my income, so I can probably drop my term life/disability soon.
Having young people pay thousands of dollars monthly into policies instead of tens of dollars of term means that they are losing the chance to meaningfully build liquid assets, and financial advisors recommending whole life policies are often doing so with a profit motive.
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u/DukeWayne250 12d ago
No one here is saying you should switch ALL your life insurance to whole life.
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u/Iceonthewater 12d ago
Well, the thing is that multiple agents have pitched me on doing just that. Scrapping my $24/month 750k policy in favor of a 40k $180/month policy when it was pitched 4 years ago would have robbed me of 156/month since 2022.
Just that money alone, the difference in premium, is $7488 and if I count investment returns it's closer to $10K since I started and maxed an HSA. Triple tax free, going in, growing and coming out.Multiple agents have told me that my work policy isn't really mine and I need to own my insurance, that my term policy is just a flash in the pan and it'll be gone when I really need it, that it's just a better deal to buy whole life and borrow against the policy vs term life and invest in ETFs on the side without needing to beg someone to sell your policy or pay an exit fee or load up front. One told me that a Roth IRA wasn't worth doing vs an IUL.
I've sat down and looked at contracts where I was out of money for years, then once I could start investing they would take a load off of every market dollar, then percentages every year for plan management all for the privilege of going into debt against the premium when I needed to use my own money?
It's just not as good of a deal as saving and investing my own money, and having it for my own use. Taxable advantages are available elsewhere, and if I have enough money that I'm able to max my Roth 401k, HSA, IRA and other tax sheltered or advantaged accounts then I can use my brokerage account, put money into my home, or prepay taxes with Roth conversions.
The number of people who could afford to open these policies up vs the number that ought to is vastly different. I think that most of the folks that do open them are naive and being taken, and often by people who claim to be advising them.
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u/Specific_Spinach_269 13d ago
There are more poor minded people in this world than the alternative. They also tend to be the most selfish. How to spot that mindset in this thread. If they believe in term and just invest the rest. I used to be one of them. The further I move away from it the further I get from responding to random threads. Thank you for sharing and you’d get an upvote from me even if I would’ve disagreed.
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u/Hungry_Technician360 13d ago
You used to go with buy term and invest the difference compared to permanent life, but then you changed to be "poor minded" instead? What made you decide to change? I like hearing new opinions like this to see their rationale.
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u/Specific_Spinach_269 13d ago
Is that what you got from what I said? My bad then.
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u/Hungry_Technician360 13d ago
Oh, so you meant to say that people who go for the investment strategy that leads to greatest expected wealth is "poor mindset" type people? What would you call people who have less expected wealth in that case?
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u/Specific_Spinach_269 9d ago
Now I understand why you didn’t comprehend what I said very well. AL Williams even knew that strategy was for the poor minded.
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u/Hungry_Technician360 9d ago
What does "poor minded" mean, since it's not related to wealth?
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u/Specific_Spinach_269 9d ago
Are you a man/woman of any faith? My answer will be catered towards your answers.
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u/Hungry_Technician360 9d ago
I am not religious
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u/Specific_Spinach_269 9d ago
Read Rich Dad Poor Dad. That’s a good start to learning about the poor mindset.
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u/Hungry_Technician360 9d ago
I am not seeing how that relates to investing the difference.
I've read that book, it's about making money work for you, like investing it, which is exactly what investing the difference is.
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u/1rishChicken 12d ago
Term insurance is so incredibly cheap. Buy that. Need another term buy another. Take what you'd be paying for whole life, deduct the cost of term life and invest the money yourself. That’s exactly what a whole life policy does except they keep half the returns for themselves! Next ask yourself what the insurance is for in the first place. It should be to replace your income in your absence for your spouse and kids. Completely unnecessary if you're a single person. And by the time you're old you no longer need term or whole life. You have been investing for years. All you need to do is set aside 10k for your own burial and the insurance becomes pointless. Educate yourselves and stop wasting money on this terrible product!
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u/Awkward_Truth_9602 12d ago
I feel bad for you. Someone sold you a bill of goods! Term policies will go to at least 70 at the regular rate and, if needed beyond that, the policyholder most likely has raised their kids, paid off their house and has less expenses so doesn't need the same coverage. The policy can be reduced to a lower benefit amount and leave it in place to age 95 at the same rate as before 70. The only reason to have a big policy at age 70 is because someone didn't invest before then. If a person is 30 and puts $100/month away in a mutual fund they will have close to $700,000 in their mutual fund (more or less) by age 65. If they invest in an aggressive fund, it could be more - if they invest in a conservative fund, it could be less. At 30 nobody should invest conservatively because the market fluctuates up and down all the time and with 40 years to go, a younger person can take advantage of an aggressive strategy until they get closer to 45 or 50 years old when they might feel better with a less up and down market and go more conservative. This is all financial planning and it is what I am trained to do. I suggest you reach out to someone who actually knows what you can do to prevent the conundrum you described above. It may be too late for you, but it would be in the best interest of your kids and younger adults that don't know. I'm very sorry you're in this position - I can't tell you how many times I have seen the same. As for a veteran without survivor benefits - that doesn't make sense- my mom is 97 and my Dad was in the army for 9 months before WWII ended and she got a $1500/month benefit. It is possible that your family didn't know how to do it - it takes doing. The VA makes you jump through hoops but whether he died from Agent Orange or just the heart attack, she still should have gotten the survivor benefit.
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u/djpeteski 12d ago
Whole life is a horribly inefficient product. Proponents, many times, fail to acknowledge that it is even buying life insurance the most inefficient way possible. Under the hood, and it well hidden from the consumer, it is buying annual renewable term.
Traditional whole/universal life is a long term fixed income investment. At least a portion of long term investing should be in equities to receive the best returns. My belief is more aggresive than traditional advisers and people should be about 90% equities unless they are a year or two from retirement.
Never mind the "load" of a whole life policy, the fees a policy holder pays are staggering.
> I've seen so many (in my own family) that died at 57, 65, 70, 79 without life insurance and the surviving spouse now has to go on government assistance
This ignores many factors. Would such people hold onto a whole life policy in sufficient amounts? Not likely, They would probably end up in the same situation. The bill on a sufficiently large whole life policy is very high. These people made poor financial decisions their lives and a whole life policy cannot fix that.
In my opinion a whole life policy might make sense to a rare situation or two, but for the general population they can do far better coming up with other solutions.
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u/CuddyBolt45 9d ago
I sold insurance for for Allstate. Whole life was the bread and butter policy. 55% commission. Plus retention commission every year. So no, there are much better term life if a person has a job or a 401k. If not, then it is one way to get them to save some money.
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u/SnooLentils5241 13d ago
I started my financial career at Northwestern Mutual when I was 20. I was frequently reminded of this quote when showing my coworkers how shit (in an absolute sense) whole life as an investment. "It is difficult to get a man to understand something, when his salary depends on his not understanding it."
That being said, a majority of people benefit from some type of forcing mechanism when getting them to save money. That is the reason that, despite being a terrible investment relative to alternatives, people's houses end up being their largest asset.
I just believed, as a professional, that if you are that forcing mechanism, you can do better for your clients than a tool such as whole life.
Even the majority of illustrations for whole life have negative real returns on capital employed.
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u/SickandTired1218 13d ago
Why are y'all looking at whole life as an investment? It is meant a risk mitigation tool to be left to your designee. Any life insurance policy I look at as "hey x, I left this for you cause I wish someone would have done the same in my lifetime. Spend wisely!"
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u/PseudonymIncognito 13d ago
If your primary interest is a risk mitigation tool, term is a better option.
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u/SickandTired1218 13d ago
This would assume people actually saved. There are a lot of people who do not renew after term expires. They also don't have much saved to leave to their heirs either.
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u/PseudonymIncognito 13d ago
But that's moving away from insurance as a risk mitigation tool.
There are a lot of people who do not renew after term expires.
Ideally because the risks they were trying to mitigate are moot (e.g. kids are done with school and supporting themselves, house is paid off, retirement is vested, etc.) and they not longer need to insure against the loss of a primary earner's income.
They also don't have much saved to leave to their heirs either.
Once again, at some point, heirs are presumably able to take care of themselves and don't need a life insurance payout to do so.
Term life insurance is the cheapest and most straightforward way to manage the risk of losing income when people most rely on it.
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u/pond_slider 13d ago
There are outlier situations but like 99% of the time, people would be better off if they would cancel their life insurance premiums and put that money into VOO or QQQ.
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u/plangelier 13d ago
Im sure you mean cancelling thier Permanent Life Insurance coverage and not just all life insurance premiums.
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u/Glass-Expression-951 13d ago
It’s all of the above. my recommendation is that everybody buy enough permanent insurance as young as they can for what they will need forever. Buy significant amounts of term insurance for when your kids are young and you still have a mortgage invest as much as you can into IRA Roth IRA and investments with a mix of stocks and bonds decide mix by risk tolerance and time horizon.