Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and void if the insured commits suicide within a specified time (usually two years after the purchase date; some states provide a statutory one-year suicide clause). Any misrepresentations by the insured on the application may also be grounds for nullification. Most US states specify a maximum contestability period, often no more than two years. Only if the insured dies within this period will the insurer have a legal right to contest the claim on the basis of misrepresentation and request additional information before deciding whether to pay or deny the claim.

As for your question, I don’t believe I’ve ever reviewed a USAA whole life policy so I can’t comment on then specifically. I would simply encourage you to start by clarifying your personal goals and to then evaluate each option based on how well it will help you meet them. With that said, of your main goal is investing for retirement then I would typically encourage you to max out traditional retirement accounts before considering any kind of life insurance. 

The best thing to compare permanent life insurance policy to is to another similar type permanent life insurance policy. And you don’t want to focus on the interest rate specifically but on the actual values in each policy that are “guaranteed” – not projected. All things being equal, this tells you which permanent policy is less expensive and provides a higher net interest rate instead.
My parents had a whole life insurance policy with Colonial Penn since the late 80’s. My father was handling my mother and his financial affairs until he was diagnosed with Alzheimer’s. Little did I know his policy lapsed. I contacted the company to find out how much in the rear they were. Well, I was told that my dad could be reinstated if the payments were brought up to date but I would have to fill out a health questionnaire for my mom. Unfortunately my mom was recently diagnosed with stage 4 lung cancer so I’m quite sure they will not accept her again. At this point neither has any life insurance. I honestly do not know what else to do. Can a policy that has lapse be paid out? Do you have any suggestions? Is there anything that I can do?
I’m honestly not 100% sure about this, but I haven’t heard of someone paying more in premiums than they get in death benefit. With a whole life policy, there will typically there will be a point at which the cash value is sufficient to pay the premiums itself, though when that might occur is a big question market. Also, in the illustrations I’ve seen the death benefit itself will also increase as the cash value increases.

There are a number of explanations for this difference, including fees and the way in which the interest rate is applied. But the bottom line is that you can’t take that “guaranteed return” at face value. It is incredibly deceptive. Run the numbers for yourself and see if you’re happy with the result. The reality is that you can often get better guaranteed returns from a savings account or CD that’s also FDIC insured.
The problem is that it takes a long time for the returns to reach that level. There will be many years at the start of the policy where your return will be negative, and many more years where the return will be only slightly positive. If you stick with it for a long time, you eventually get into a reasonable range of returns. But if at any point before that you decide you want to do something different, you will have spent many years and a lot of money getting very poor returns.
I have calculated a ~4% average annual ROR if the policy is kept for at least 20 years. This is not an IRR as an IRR gives no credit for the value of the death protection. This assumes the current dividend scale and can be defined as essentially the interest rate that accumulates the premiums, less an estimate of the value of the death protection each year, to the policy’s cash surrender value at the end of the period studied. It attempts to answer the question, “What interest rate would I have to earn on an outside investment of the extra premiums for WL to do as well as investing those extra premiums, in the WL policy?” consumerfed.org is a great resource for this analysis and other literature on this subject.
The “fixed returns” you talk about from whole life are not the 4-6% you mention in multiple places. Again, as I said in the post, the guaranteed returns are much closer to 1% or less. Yes you might get better returns depending on the dividends the insurance company decides to pay, but that’s not “fixed” or guaranteed. It changes every year. And yes, you can improve those refunds if you vastly overfund the policy in the early years, which again is something I already mentioned in the post. But for 98-99% of the population that really isn’t a viable strategy.
There are also companies known as "insurance consultants". Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client. 

That being said there are merits to the latter, which should really be sold as “cash building” tools for people that want to diversify their tax exposure, that’s it. But like you said most agents have no clue about real financial planning. Which would obviously include some degree of IRA’s, 401K’s, ROTH’s, Taxable accounts, hard assets, etc. Like you stated earlier. But have you considered an overfunded cash value policy as a way to diversify within your cash bucket assuming you believe in asset allocation, max 10-20% of total investment? More as an alternative cash bucket? But then that comes to income and the type of individual. I probably recommend them more than most, working with business owners and corporate managers. But for them they need more future tax diversification if taxes are headed north in the future. And the company I use which sadly I’m not going to talk about since I don’t even want anyone to know I wrote this “compliance would massacre me”. But those can be used by a business owner to leverage their cash and actually write off interest paid while said cash is still earning 100% dividend treatment, but of course only a few of those types of companies out there.
Definite loss: The loss takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place, or cause is identifiable. Ideally, the time, place, and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.

We got our insurance through a broker and it's been kind of an annoyance. When they were taken over by another company after having the policy for decades we got a non renewal notice which was fine because we were not interested in doing business through them anyway until we found out that non renewal meant no other insurance wanted us and we were forced to buy a new policy through the broker.

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Point Two: There is NO SAVINGS in literally 99% of all whole life or cash value policies! In the event of the death of the insured, the LIFE INSURANCE COMPANY TAKES THE SAVINGS TO PAY OFF THE FACE VALUE OF THE INSURANCE!!! The only person who saves money is the agent and the insurance company. The insured or beneficiaries saves nothing! There may be a few divergent exceptions with cumbersome addons, but NO SAVINGS TO YOU is the result.

2)The lack of cash flow flexibility is troubling in that the largest assumption driving my analysis is that I am able to continue paying the premiums and keeping my policy current. If I want to take time off for travel (which is a near-term goal) or lose my job before this becomes self-funding, the policy can lapse and I would get only the cash surrender value at what is most likely a loss depending on timing

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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.

INSURANCE COMPANIES DO NOT TAKE FROM THE CASH VALUE I HAVE NOT IN 30 YEARS IN THE BUSINESS EVER SEE A CASH VALUE GO DOWN. It goes up. And you can count on it . It has to be the most valueable , and reliable form of insurance that ever existed and lucky for us in Canada the insurance companies are tightly monitered and re-insured . It’s as safe as investing gets.
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There are a number of explanations for this difference, including fees and the way in which the interest rate is applied. But the bottom line is that you can’t take that “guaranteed return” at face value. It is incredibly deceptive. Run the numbers for yourself and see if you’re happy with the result. The reality is that you can often get better guaranteed returns from a savings account or CD that’s also FDIC insured.
When I was at the meeting yesterday with my parents also present, I was really impressed at the product, which was basically a variation of whole life insurance called FFIUL. I was also impressed with the upper level salesman and the presentation. I saw the simulation that was shown and the resulting table of yearly returns looked impressive at first. I left the meeting with a smile on my face and was really thinking about making the investment especially considering that my friend (an accountant whose house I was at) said that he had invested in the same product.
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.

All points have merit but, like any service, unprofessional service can be punished by walking. However, point #4, “market blocking” is a particularly confounding practice in P&C (I don’t think this occurs in LIfe & Health). Market blocking is a matter which Insurance Commissioners could easily correct nationwide to the immediate benefit of the customer.


Insurance can influence the probability of losses through moral hazard, insurance fraud, and preventive steps by the insurance company. Insurance scholars have typically used moral hazard to refer to the increased loss due to unintentional carelessness and insurance fraud to refer to increased risk due to intentional carelessness or indifference.[20] Insurers attempt to address carelessness through inspections, policy provisions requiring certain types of maintenance, and possible discounts for loss mitigation efforts. While in theory insurers could encourage investment in loss reduction, some commentators have argued that in practice insurers had historically not aggressively pursued loss control measures—particularly to prevent disaster losses such as hurricanes—because of concerns over rate reductions and legal battles. However, since about 1996 insurers have begun to take a more active role in loss mitigation, such as through building codes.[21]

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Then I would try to find a good, honest, independent life insurance agent who could help you evaluate the policy and show you what your options are. If the death benefit is valuable to you, you may be able to exchange it for a different policy that eliminated or reduced the need for premium payments, which might be a huge help. If you would like some help finding an agent, email me at matt@momanddadmoney.com.
In the United States, life insurance companies are never legally required to provide coverage to everyone, with the exception of Civil Rights Act compliance requirements. Insurance companies alone determine insurability, and some people are deemed uninsurable. The policy can be declined or rated (increasing the premium amount to compensate for the higher risk), and the amount of the premium will be proportional to the face value of the policy.
First, THE PROBABILITY OF GETTING THE PAYOUT IS SUPPOSED TO BE 100%! It is a GUARANTEED return, so long as your insurer lives up to its obligations (more on that below). So it is a much less risky investment than almost anything other than cash. But CD rates will often look better than the whole life return, so why not invest your money there? Well..

In the United States, the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by a low return. This depends upon the insuring company, the type of policy and other variables (mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value accumulation.

A good agent will figure out how much insurance is needed, and if a whole life policy would make sense without causing the policy to MEC within the constraint of one’s human life value. As for surrenders and loans against the policy, good agents discuss how to structure these options for supplemental retirement income to maintain a reasonable death benefit given a retirement age. There are institution(s) that have always paid a dividend and have been top rated every year.
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I have calculated a ~4% average annual ROR if the policy is kept for at least 20 years. This is not an IRR as an IRR gives no credit for the value of the death protection. This assumes the current dividend scale and can be defined as essentially the interest rate that accumulates the premiums, less an estimate of the value of the death protection each year, to the policy’s cash surrender value at the end of the period studied. It attempts to answer the question, “What interest rate would I have to earn on an outside investment of the extra premiums for WL to do as well as investing those extra premiums, in the WL policy?” consumerfed.org is a great resource for this analysis and other literature on this subject.
As for your question, I don’t believe I’ve ever reviewed a USAA whole life policy so I can’t comment on then specifically. I would simply encourage you to start by clarifying your personal goals and to then evaluate each option based on how well it will help you meet them. With that said, of your main goal is investing for retirement then I would typically encourage you to max out traditional retirement accounts before considering any kind of life insurance.
Certain insurance products and practices have been described as rent-seeking by critics.[citation needed] That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products.[citation needed] Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.
A good agent will figure out how much insurance is needed, and if a whole life policy would make sense without causing the policy to MEC within the constraint of one’s human life value. As for surrenders and loans against the policy, good agents discuss how to structure these options for supplemental retirement income to maintain a reasonable death benefit given a retirement age. There are institution(s) that have always paid a dividend and have been top rated every year.

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?

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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.

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Term life insurance is very simple. You pay a (typically) small premium for financial protection that lasts a specific amount of time, typically 10-30 years. It is pure insurance. The only potential benefit is the payout upon death. And in my opinion, this is the only type of life insurance that most people should consider, since the financial protection provided by the death benefit is the entire purpose of life insurance.
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Holly, I just turned seventy years old and retired and constantly looking and applying for jobs because my monthly income is only 1,206.00. I am divorce for only twenty eight years and have a learning disabled adult son who has never work. I need a life insurance policy to be around $30,000 to cover funeral expenses and some money for my son to cope. What life insurance company should I chose and should I chose term or whole life? I would greatly appreciate your response. I have no savings. Thank you. Diahann Cambridge

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The comparison for defined contribution vs registered accounts is easier because you are dealing with account values which you can project with a fair degree of certainty, at least within ranges to which you can apply confidence intervals, to the degree market activity can be reliably subjected to statistics (point of contention: this is debatable…otherwise we wouldn’t have return years with standard deviations of 3+). You just project the accumulation and the withdrawal and see which one runs out of money first, then consider the non-financial issues already discussed above. Comparing defined benefit plans vs registered accounts is a little bit tougher. This is where you might want to bring in your accountant or actuary to do the math. They can provide you with the information you need to make the decision.
I have a AARP New York life policy . I began this policy in 2000 term life. My son-in law was working in insurance and told me whole life was better. I didn’t listen for about 5 years more . I then told them I wanted to borrow a certain amount they told me I hadn’t put enough in the policy as I had just changed to whole life a few months ago.they had also told me I couldn’t borrow on the term life anyway ! So I lost over ten years on permenent life
This is a very helpful example of why WL insurance IS a good investment: http://www.mypersonalfinancejourney.com/2013/04/infinite-banking-concept-whole-life-insurance.html. Also, Paradigm Life has several very good models to show how WL policies can out pace “buy term and invest the difference” products long term. One size does not fit all. I have Term Life insurance supplementing my WL policies right now, but they are all convertible. So I will be able to lump in money later and convert them into permanent policies with all of the borrowing and tax sheltered benefits.
To "indemnify" means to make whole again, or to be reinstated to the position that one was in, to the extent possible, prior to the happening of a specified event or peril. Accordingly, life insurance is generally not considered to be indemnity insurance, but rather "contingent" insurance (i.e., a claim arises on the occurrence of a specified event). There are generally three types of insurance contracts that seek to indemnify an insured:
Using a broker can also simplify the process of picking insurance. There are so many different choices for insurance, with different limits and exclusions for each policy. It can be difficult to know which insurance and what level of coverage is right for you or your business. This is where an insurance broker can help. Using their experience in the field, a broker can analyze your risks and liabilities to determine exactly what coverage you need. With access to a variety of technology-based tools, brokers can make it simple to compare various options to determine which policies would best fit your needs. Using a broker eliminates the stress of learning about different types of insurance, and makes it easy to figure out what insurance will work for you.

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.


Fifth, if you have maxed out all your tax-advantaged investment accounts, you are on track for all your other financial goals, you are able to enjoy a lifestyle that makes you happy, and you still have money leftover, then yes, some kind of permanent life insurance policy could possibly make sense. But it would need to be a policy that was specially designed to minimize fees and maximize growth, and you need to work with a certain kind of agent in order to have that done.
6The monthly rate shown is for Preferred Elite based on a Male, age 37. Allstate Lifetime UL® is a flexible premium universal life insurance policy issued by Allstate Assurance Company, 3075 Sanders Rd., Northbrook IL 60062 and is available in most states with contract series AC13-12. In New York, issued by Allstate Life Insurance Company of New York, Hauppauge, NY with contract series NYLU676.
Life insurance can be very confusing. What is term life insurance? What is whole life insurance? How can you get the information you need and make the right decision about life insurance for you and your family or other beneficiaries? We’ll provide an overview of these two popular types of life insurance so you can get an idea of what might be a good fit for you. Find out more by contacting an insurance agent in your area. 

The insurance company calculates the policy prices (premiums) at a level sufficient to fund claims, cover administrative costs, and provide a profit. The cost of insurance is determined using mortality tables calculated by actuaries. Mortality tables are statistically based tables showing expected annual mortality rates of people at different ages. Put simply, people are more likely to die as they get older and the mortality tables enable the insurance companies to calculate the risk and increase premiums with age accordingly. Such estimates can be important in taxation regulation.[10][11]
Of course the fees are applied to your principle and interest, which drags the value of your account down to painful levels. The simulation that the salesman ran for me was based on the assumption that the value of the account would grow 8% compounded every year. The results of this simulations looked really cool at first because the salesman focused on the long term results and the steady increase in death benefit. But when I looked at the numbers more closely, it was sobering. The investment produced negative interest in the first 7 years (as high as -37.51% in the first year) after which it turned the corner and then began to return 6-8% after year 11.
When the market experiences “down years” you will want to used a fixed investment to take your distributions in order to give your market-exposed vehicles time to recoup losses. This is one of the best pieces I have seen regarding “Taming a Bear Market” where one uses whole life insurance to supplement 401(k) distributions in bad years: http://www.becausewearewomen.com/documents/LEGACY10-RETIREMENTSUPP.pdf
This is a very helpful example of why WL insurance IS a good investment: http://www.mypersonalfinancejourney.com/2013/04/infinite-banking-concept-whole-life-insurance.html. Also, Paradigm Life has several very good models to show how WL policies can out pace “buy term and invest the difference” products long term. One size does not fit all. I have Term Life insurance supplementing my WL policies right now, but they are all convertible. So I will be able to lump in money later and convert them into permanent policies with all of the borrowing and tax sheltered benefits.
Any person who uses permanent insurance should be out of debt and have the discipline to maintain a long term approach. There aren’t any get rich quick schemes and any plan can work as long as an investor looks to get the maximum value for the money they pay. Cash Value Life insurance provides values that promises you or I can’t keep unless we partner with one of these companies.

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