1. Alex hasn’t reviewed your policy, nor does he know anything about your personal goals or situation. Neither do I, which is why I didn’t give any concrete advice in my initial response. All of which is simply to say that any opinion about this policy based on what we know from your comment, whether it’s coming from me, Alex, or anyone else, cannot possibly be informed enough for you to rely on.
Each type of life insurance product has its advantages and disadvantages. You can’t say term life is the best, whole life is the best or universal life is the best. It depends on what an individual client need and his or her situation. As a client, they should know all the advantages and disadvantages but of course, they are under the supervision of a certain type of insurance agent that can be biased and try to sell what they have to offer to form their companies. Avoid an agent that focuses on selling one type of product. Talk to an agent who can provide the knowledge of each type and you can choose what best for you.
Finally, everyone who accumulates assets will have a life insurance policy of one type or another. Social Security currently is “a life insurance policy”. Will it be around in 30 years? Who knows…who knows what will be there. All I know is that a good plan will have a guaranteed income source that they can not outlive. Many people with assets take Social Security before age 70 because they want to be sure to get something out of it…this is a life insurance decision. They reduce their life time income by taking payment early. If they owned a permanent life policy, they could reduce their investment risk by spending assets and leverage the insurance policy to replace the assets they use while they delay taking income from SS and the increased payment the benefit provides can increase their life style, pay the premium and create a legacy for their children, grand children or favorite charity. Life insurance “loans” are not income. They are loans. So if a person planned ahead, they could receive 10’s of thousands of dollars from the cash value of their policy (and ROTH IRA money) and not pay a dime of income tax on the social security benefit. If inflation happens and interest rates and taxes increase, the SS benefits will increase and this person will have increasing income that won’t be consumed by an increase in taxes as all their income would be tax free.
Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the insured (either inside "house" counsel or outside "panel" counsel), monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge.

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In fact, he sort of torpedoes his argument by saying policy loans are legit, with the implication being policyholders are going to get into trouble if they don’t understand how to use policy loans. …but people already get into trouble by not being financially responsible so…again…nothing new. The problem isn’t borrowing or insurance. It’s financial education.
As a financial planner I find this article very misleading. Whole life insurance can be an excellent way for someone to save for the long term. If you earn too much for a Roth IRA especially (180K plus for a household roughly) then whole life insurance is literally the only place to get tax free savings on growth  (tax free municipal bonds also but these have a lot of risk especially with interest rates going up). A properly designed whole life insurance policy with a good company like a New York Life,  Mass Mutual,  Northwestern etc which have always paid dividends since the mid 1800s can easily earn NET of fees and taxes 4-5% over a 25-30 year period. Which means in a taxable brokerage account for example or a bank account you would have to GROSS 6% or so to match this over that same period every year on average? On a virtually guaranteed basis this is tough to do. This doesn’t even speak to the point that you have a tax free permanent death benefit. When a client’s 20 year term runs up they almost always still want and need some life insurance,  and what if they aren’t insurable anymore? Getting some whole life when young and healthy,  savings/cash value aside,  assures them they’ll always have coverage which can someday go to kids,  grandkids etc which is a nice option. Whatever cash you pull out reduces the death benefit dollar for dollar, but if set up properly there will always be more than enough death benefit even after most of cash is taken out tax free in retirement, when the stock market is down (this is especially when you appreciate having a non correlated asset like whole life for when the market crashes and you can tap into your whole life cash so you don’t have to touch your investments in that downturn OR take advantage of the opportunity and but stocks when things are down with cars value). Interest does accrue on policy loan which is why the tax is cash free and the loop hole exists. But often the dividend more than offsets the policy loan interest which doesn’t have to be repaid and just comes off of the death benefit which is often just a bonus anyways. A client should make sure they have enough coverage of course which is why people often get a large term life insurance which is “cheap”  in addition to a smaller whole life which is a dual savings,  dual coverage to be in place when the term expires.

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Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insureds directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD.
With whole life insurance, you can’t just decide to stop paying premiums. Well, you can, but if you do then the policy lapses and you’re forced to withdraw the cash value, which will subject you to taxes and possibly a surrender charge. And if you haven’t had the policy in place for multiple decades, you will also be left with meager, and possibly negative, returns.
I really wish you would have stated more clearly the difference between the typical whole life plans with zero overfunding and a participating overfunded whole life policy. But I agree with you: What’s the point of not overfunding? Those policies have such a low cash component that they typically are just a ploy to make money by the agent and it seems as if that was your point all along. Which you should have clarified. Why minimum whole life insurances plans are a scam, especially when sold as a main investment vehicle. But then a little drama drives traffic right?

Insurance broker became a regulated term under the Insurance Brokers (Registration) Act 1977[2] which was designed to thwart the bogus practices of firms holding themselves as brokers but in fact acting as representative of one or more favoured insurance companies. The term now has no legal definition following the repeal of the 1977 Act. The sale of general insurance was regulated by the Financial Services Authority from 14 January 2005 until 31 March 2013 and by the Financial Conduct Authority since 1 April 2013. Any person or firm authorized by the Authority can now call themselves an insurance broker.

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Question Matt, what are your credentials? On the subject of finance and securities, do you hold any of the licenses I mentioned in my response earlier? Are you in the industry, or were you just sold by an agent and didn’t know what you were buying and now you are having buyers remorse looking at an illustration that was shown to you and figuring how you may have gotten a little less than you bargained for by using a calculator? Because dealing with some of our top clients who are in a tax bracket that you nor I will ever see, they are happy with the level of service we provide and the products we offer, maybe you just had a bad agent that needed to close a deal before the month’ s end and made you a customer and it was very transactional as opposed to assessing your need and making you a client. If you couldn’t afford the policy he should have given you a term policy that you could later convert. People with the money prefer not to “rent” as in a term policy, and people that can afford it get permanent insurance. Some people want their wealth to be managed properly and leave a legacy behind for future generations, that is done through life insurance and the other products we offer.
Back to guaranteed growth…. Whole Life policies are interest rate driven based on the economy, but your “Cash Account” will increase every year, regardless of the market. Compound, tax-free growth. The dividends paid to the policy owners are also not taxable. Dividends are not guaranteed, but take a look at the dividend history for companies like Mass Mutual, Penn Mutual and Guardian. They might as well be guaranteed.
An agent or broker is a person or business who can help you apply for help paying for coverage and enroll in a Qualified Health Plan (QHP) through the Marketplace. They can make specific recommendations about which plan you should enroll in. They’re also licensed and regulated by states and typically get payments, or commissions, from health insurers for enrolling a consumer into an issuer's plans. Some brokers may only be able to sell plans from specific health insurers.
Thanks for the insightful article. I agree with the general statement that, in a vacuum, it is better to “buy term and invest the difference.” However, I’m interested to hear your thoughts on using whole life insurance as an investment vehicle in the context of the infinite banking model (assuming you are familiar with the concept). From what I understand, it sounds like a good way to achieve predictable and guarenteed growth on a compounded basis while allowing you to borrow money from your own policy and pay yourself the interest, all while always having access to the funds. I think it might be wise for people, like myself, are looking for guaranteed growth with little risk.
Crop insurance may be purchased by farmers to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease.[29] Index based crop insurance uses models of how climate extremes affect crop production to define certain climate triggers that if surpassed have high probabilities of causing substantial crop loss. When harvest losses occur associated with exceeding the climate trigger threshold, the index-insured farmer is entitled to a compensation payment[30].

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Did you mention anywhere that the cash value of “permanent” insurance is owned by the insurance company? Did you mention that you don’t own it; the insurance oompany does. Did you mention that the only way the client ever gets the cash value is to cancel his policy? If the client dies, then the cash value is taken to pay off part of the face value of the insurance.
To be completely honest, I didn’t go into more detail about the things you talk about here because I don’t personally believe it’s relevant for the vast majority of the population, and certainly not for my audience. I am aware that if you have a certain level of income and net worth, an overfunded policy may be a good decision for you, which is why I even mention it at all. But for most people, even an overfunded policy would represent far too big a percentage of their overall asset allocation to make sense. You’d get into the lack of diversification issue, so it’s just not worth it.
Back to guaranteed growth…. Whole Life policies are interest rate driven based on the economy, but your “Cash Account” will increase every year, regardless of the market. Compound, tax-free growth. The dividends paid to the policy owners are also not taxable. Dividends are not guaranteed, but take a look at the dividend history for companies like Mass Mutual, Penn Mutual and Guardian. They might as well be guaranteed.
After reading the entire thread, couldn’t help but add my thoughts. I am a civilian here so no affiliation as an insurance salesman or financial planner in any capacity. I am however, an owner of a WL policy (one year in) which I got through a friend in the business. I admittedly jumped into this without doing the proper due diligence as more of a favor to him. I have had anxiety about this decision since, and am days away from my second annual premium payment and have thus spent a great deal of time researching and thinking about the implications of this asset. I am at a “cut my losses and run crossroads”. Is this a quality asset, or do I cut and run and chalk-up the loss as the cost of a lesson learned in letting others do my independent thinking for me (two implications here are that 1) I do believe that the person who sold me this actually believes in the products and 2) that doesn’t mean that he is right and any person, no matter how financially savvy, who is willing to dedicate the time, can do the research and come up with their own view). I say all of this to admit that I am biased, even if only sub-consciously, as I have tried to think in a balanced manner with regards to this decision. All of that being said, I am currently leaning towards keeping the asset in place and welcome thoughts. My current logic below.

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You do write that “some of our top clients who are in a tax bracket that you nor I will ever see” enjoy the benefits of whole life. As I say in the post, there is a small percent of the population with a very large amount of money that can benefit from whole life. That is not who I’m writing for here. For 98% of the population, it is not a useful tool.
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Matt, the illustration does have a guaranteed element to it, the guaranteed keeps going up every year whether the company issues a dividend or not, obviously the guarantees are less. Like I said the purpose of this type of life insurance is not to “invest” its to have something that you wont other wise have. with 30 year term, the term is guaranteed to expire in 30 years. anyhow I wont debate you on that as I can see where you are coming from. I understand that when a person gets into a plan to pay off debt and invest heavily they will have “no need” for life insurance after they’ve paid debt and their children have grown. I’m more conservative therefore I like to make sure I have something despite having debt paid for etc.. I’d like to leave an article for you to read, its an actual case study of a gentlemen who opened a small 29000 participating whole life policy back in the mid 60’s. in 2013 he now had $166,424 in Coverage and had only paid $26,186. Anywho not bad for the guy. heres the article for anyone interested in reading the case study.

My current blended Whole Life policy breaks even with premium paid in year 5, and together with my Indexed Universal Life policies, my permanent insurance policies constitute my entire fixed income allocation. No need for bonds, as these policies give me a decent long-term growth of between 4.5-6% that is virtually risk free, tax free and dummy proof…and provides a giant tax free death benefit upon my passing.
One point I would like to counter is the idea that whole life “is insurance that CANNOT BE TAKEN AWAY”. It can be taken away if you are not able to keep up with your premium payments, which is pretty common given that people’s lives and financial situations are constantly changing. With some policies, the premium can even go up depending on the performance of the policy, forcing you to pay more than expected if you want to keep the coverage in place. So it’s not quite as simple as saying that the death benefit is a sure thing.

I read the comments about the topic of my article and I see that some responses touch on the "middleman" in ways that suggest some things about those who reside "in the middle." One plus for us "middle" people is that we get to hear things from carriers that those on the retail buying end may not ever hear. Sometimes, when dealing with us "middle" people, you get a behind the scenes look at things that may have a bearing on your coverage. With life insurance through a broker vs an agent, you get to know that impaired risk underwriting (for unhealthy applicants) has a particular kind of nuance. For instance, carriers may decline your application because they take on a set number of impaired risk clients, and then they decline those coming after that. You might think, after being declined, that what they are telling you is "you are done, no life insurance for you." But, what I know from experience is that another carrier or two have not hit the limit yet on declines - and that might be the avenue of approach to get you approved. As a broker, I know things that apply across a broad spectrum of carriers, not just the playbook of one carrier. As a result, the market intelligence of this "middleman" can improve the experience of buyers by finding a way forward for them that is outside the boundary of what a retail buyer might ever know. One thing that I did not mention in the article is that I have been both a captive and a broker, and the experience allows me to see the pluses and minuses in both. Thank you for your responses, and if you have a question about insurance of any type (my specialties are life, Health, Disability, and Annuities) you may post it at MoneyTips.com and let the professional community respond to it. It's free, harmless, informative, relatively instant, and a bunch of other good things, too.
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Large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Exceptions include Lloyd's of London, which is famous for insuring the life or health of actors, sports figures, and other famous individuals. However, all exposures will have particular differences, which may lead to different premium rates.
Although some aspects of the application process (such as underwriting and insurable interest provisions) make it difficult, life insurance policies have been used to facilitate exploitation and fraud. In the case of life insurance, there is a possible motive to purchase a life insurance policy, particularly if the face value is substantial, and then murder the insured. Usually, the larger the claim, and the more serious the incident, the larger and more intense the ensuing investigation, consisting of police and insurer investigators.[30]
I have a few whole life policies. I was older when I really started to save and have the ability to pay into these accounts now (one I paid $95,000 right at start) and started late on a 401K. I max out my 401K contributions every year (I’m in the 50+ catch up department) so I believe the thinking was that these policies were the best option given my late start. Is that true? It seems your article is geared toward the young investor.

Your “rent” analogy is a classic one used by life insurance salesmen when selling whole life, but it is a poor analogy. After all, insurance has nothing to do with renting vs. owning. Would you say that most people are simply “renting” auto insurance? Do you think people should buy auto insurance policies that will pay them the full price of a new car whenever their car dies, even if they drive it into the ground? Because that’s essentially what whole life insurance is. The main purpose of life insurance is to provide financially for dependents in the case that you die early, just as the main purpose of car insurance (beyond the liability portion) is to provide the financial value of your car in case it dies early. Once that financial protection is no longer needed, the insurance need is gone. Term insurance protects you while you need it and goes away once you don’t. It is insurance in the purest sense of the word and is by far the more effective way to go about it for the vast majority of the population.
In the United Kingdom, The Crown (which, for practical purposes, meant the civil service) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.
Although some aspects of the application process (such as underwriting and insurable interest provisions) make it difficult, life insurance policies have been used to facilitate exploitation and fraud. In the case of life insurance, there is a possible motive to purchase a life insurance policy, particularly if the face value is substantial, and then murder the insured. Usually, the larger the claim, and the more serious the incident, the larger and more intense the ensuing investigation, consisting of police and insurer investigators.[30]
Beyond that, I do agree that whole life insurance can be useful in certain situations when structured properly. But those situations are few and far between and they require the help of someone who both knows the ins and outs of these policies AND is willing to put the client’s interests over their own financial interests (i.e. minimizing commissions and other costs on the policy). That kind of person is also difficult to find.
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If you are in the market for insurance for your business, home, vehicle, or your family, a broker can help you determine what your insurance needs are and what insurance is right for you. Because a broker works for you — not for an insurance company — you can be assured that your insurance broker has your best interests in mind when shopping for insurance policies. Contact an insurance broker today to learn more about how he or she can help you buy the best possible insurance for your needs.

Premiums paid by the policy owner are normally not deductible for federal and state income tax purposes, and proceeds paid by the insurer upon the death of the insured are not included in gross income for federal and state income tax purposes.[28] However, if the proceeds are included in the "estate" of the deceased, it is likely they will be subject to federal and state estate and inheritance tax.
Good question Eski. I would encourage you to look into long-term disability insurance as a potentially more effective way to provide coverage for the exact risk you’re talking about. In general you’ll get better, more comprehensive coverage from a disability insurance policy that’s specifically designed for this than from a life insurance policy that includes it as a limited add-on.
Hi Matt. Read your posts and comments on Whole Life and the overfunding options available. I have a different situation involving a policy with Prudential called Variable Appreciable Life. I am looking for a safe haven for some available cash with a minimum return of 4%. Agent/Financial Planner has suggested I overfund the balance of that VAL policy. Yes, I am quite conservative but have enough invested in 401k, Stocks, Funds etc. Policy is 50K and issued in 1990. Wife and I are in mid seventies and looking to have 30-40K of available liquid cash. Can add/withdraw the overfunding $ at any time. Interest guarantee is 4.0%.

Point Three: One of the catches of the whole life agent is “Whole life insurance never expires!” Okay let us imagine a house insurance agent selling you an addon savings plan to your house fire insurance. Say you eventually sell the house and move to an apartment. Now would you want to keep paying house insurance when you DO NOT HAVE A HOUSE ANYMOFE ??? 🙂 Or paying for car insurance when you no longer have a car??? So why would you want to keep paying for a poor savings plan that only saves the life insurance company any money??? 🙂
Well, first of all, I know nothing about how things work in Canada so I’m definitely not qualified to advise you on this. Given the same situation in the US though, I would say that it’s something you could consider. I would just make sure that you work with a fee-only financial planner who specializes in this kind of thing, can evaluate all of your options in the context of your specific goals, and, if this ends up being a good option, can help you find a policy specifically structured to minimize costs and maximize growth. That’s really the only way I would consider it.
In the United States, insurance brokers are regulated by the individual U.S. states. Most states require anyone who sells, solicits, or negotiates insurance in that state to obtain an insurance broker license, with certain limited exceptions. This includes a business entity, the business entity's officers or directors (the "sublicensees" through whom the business entity operates), and individual employees. In order to obtain a broker's license, a person typically must take pre-licensing courses and pass an examination. An insurance broker also must submit an application (with an application fee) to the state insurance regulator in the state in which the applicant wishes to do business, who will determine whether the insurance broker has met all the state requirements and will typically do a background check to determine whether the applicant is considered trustworthy and competent. A criminal conviction, for example, may result in a state determining that the applicant is untrustworthy or incompetent. Some states also require applicants to submit fingerprints.

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Second, I would say that it’s debatable whether whole life insurance is actually better than a savings account or CD, in terms of a savings vehicle. You mention the guaranteed return. Well, as I mention in the post, my policy had a “4% guaranteed return”, but when I ran the numbers it only actually amounted to 0.74% event after 40 years. It was less before that. And this was from one of the top mutual life insurers in the country. Not only is that incredibly misleading (and that’s being kind), I can get a better guaranteed rate than that right now from an online savings account, even though interest rates are at an all-time low. And my online savings account doesn’t have any of the other huge drawbacks that are also mentioned in the article.

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My parents had been paying into a whole life policy for many years and did not pay much attention to the cash balance over that time. When they finally had evaluated what they had in the policy, they discovered the ‘cost of insurance’ on the now older policy had increased so much that the premium they had been paying no longer covered the costs of the policy and the balance needed was being withdrawn FROM THEIR CASH VALUE. Needless to say, the insurance company or their agent did not notify them of this, so a policy that they had paid $75,000 into had a cash value of just $12,000 and was actually decreasing in value. Whole life policies are advertised as you paying the same premium amount for the entire life of the policy, but in the small print they are apparently allowed to adjust for the ‘cost of insurance’. It’s a brilliant scam. Pay attention to the policies you have.
I recently reviewed my mother’s life insurance policy. Someone sold her a whole life policy with a 35K death benefit for $197.00 per month. She was 71 years old when she bought it! She brought it to my attention last month after being diagnosed with lung cancer, explaining she could no longer afford the payments. She requested I review/change the policy to pay less so she would have lower payments. Of course, no one will insure her now! My mother does not have a lot of money and I think the guy that sold it to her is a jerk as she already had a term policy – which she cancelled after buying this one. Is there an ethical recourse?

An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter. A person or entity who buys insurance is known as an insured or as a policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and usually involves something in which the insured has an insurable interest established by ownership, possession, or pre-existing relationship.


Universal life insurance (ULl) is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payments, along with the potential for greater growth of cash values. There are several types of universal life insurance policies, including interest-sensitive (also known as "traditional fixed universal life insurance"), variable universal life (VUL), guaranteed death benefit, and has equity-indexed universal life insurance.
My argument is based on the fact that whole life insurance is often sold as an investment, and therefore many people buy it as an investment. I am well aware that there are other reasons people buy it, and those are explicitly acknowledged in the article. The rest of your questions have already been addressed in both the article and other comments.

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