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.
Often a commercial insured's liability insurance program consists of several layers. The first layer of insurance generally consists of primary insurance, which provides first dollar indemnity for judgments and settlements up to the limits of liability of the primary policy. Generally, primary insurance is subject to a deductible and obligates the insured to defend the insured against lawsuits, which is normally accomplished by assigning counsel to defend the insured. In many instances, a commercial insured may elect to self-insure. Above the primary insurance or self-insured retention, the insured may have one or more layers of excess insurance to provide coverage additional limits of indemnity protection. There are a variety of types of excess insurance, including "stand-alone" excess policies (policies that contain their own terms, conditions, and exclusions), "follow form" excess insurance (policies that follow the terms of the underlying policy except as specifically provided), and "umbrella" insurance policies (excess insurance that in some circumstances could provide coverage that is broader than the underlying insurance).[32]
In my experience it is rare to find a policy for which the cash value growth by year 6 doesn’t exceed the annual premium (except for policies purchased at older ages, or policies of low face amounts, which have inherently higher costs), that is more than likely to hold true by year 9 or 10! Catching onto some words in my statement, while ignoring the facts presented, doesn’t make you more credible. I challenge you to post images of inforce illustrations where cash value growth is less that the annual premium by year 6.
When you start your search, you can pick an independent agent or a captive (or direct) agent. An independent agent may sell policies from many different companies. A captive agent sells insurance for only one company. Independent and captive agents represent insurance companies and receive a commission from the insurance company for the sale of its policies.
Terrorism insurance provides protection against any loss or damage caused by terrorist activities. In the United States in the wake of 9/11, the Terrorism Risk Insurance Act 2002 (TRIA) set up a federal program providing a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism. The program was extended until the end of 2014 by the Terrorism Risk Insurance Program Reauthorization Act 2007 (TRIPRA).
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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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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There are certain instances where whole life can be useful. If you have a genuine need for a permanent death benefit, such as having a disabled child, it can serve a valuable purpose. If you have a large amount of money, have already maxed out all of your tax-deferred savings, and you can afford to front-load your policy with large payments in the first several years, it can provide better returns than was discussed above. So it is a useful product in a limited number of cases.
Response 3: I’m sure that some are. It is up to you who to trust. I’d suggest asking up-front how these people are paid, because some are non-commissioned (e.g. if your employer pays them a flat fee to consult). But also keep in mind that you don’t want to take your advice from people with the opposite bias, either. Financial advisers are often paid on discretionary assets managed. If they are, then their incentive is clearly for you to buy term insurance (or no insurance) and let them invest as much as possible on your behalf. Just be careful and take a long time to think through the issues.
Calculable loss: There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.

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Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and The Business Benefits Group / IFG are not affiliated. Additional products and services may be available through The Business Benefits Group / IFG that are not offered through AIC. Securities products are limited to residents of Virginia. This is not an offer of securities in any jurisdiction, nor is it specifically directed to a resident of any jurisdiction. As with any security, request a prospectus from your Registered Representative. Read it carefully before you invest or send money. A Representative from The Business Benefits Group / IFG will contact you to provide requested information. Representatives of AIC do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation.

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I find whole life as a way to guarantee some form of money will be there when its needed or maybe even as a gift. For such a low amount paid it would give me peace of mind and joy to know im buying future dollars at a discounted price. With that being said, life insurance should not be used as an investment because it was not meant to be used as an investment, You CAN use it as a Savings account for the LOOOONG term 30+ years if overfunded then rolled over to an annuity however by no means should it be your retirement account. I wish I could explain this concept more but I feel like ive typed quite a bit.

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*This material is for informational purposes only. In general, partial or full surrenders from a permanent life insurance policy in excess of the policy’s basis are taxable, and limited circumstances exist where death proceeds will be taxable. Neither Farmers New World Life Insurance Company, nor its employees nor its agents provide legal or tax advice. Always consult your own attorney, accountant or tax adviser as to the legal, financial or tax consequences and advice on any particular transaction.

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.
Brokers - Because a broker is solely focused on your unique needs, he or she can help with comparison-shopping, honing in on the best prices for the coverage you need. They can even advise you on how to best bundle or customize your policies in ways that agents might not be able to do (either because they are restricted in their policy offerings, or simply because they lack the insight into your specific needs).
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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.
Coverage that suits you. Comprehensive and collision coverage is just the beginning. Our policies also give you the flexibility to dial up (or down) your peace of mind. Choose from new car replacement2, special parts replacement3, enhanced rental car damage coverage4, and more. And because there’s only one you, receive identity theft protection5 at no extra cost.
Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and The Business Benefits Group / IFG are not affiliated. Additional products and services may be available through The Business Benefits Group / IFG that are not offered through AIC. Securities products are limited to residents of Virginia. This is not an offer of securities in any jurisdiction, nor is it specifically directed to a resident of any jurisdiction. As with any security, request a prospectus from your Registered Representative. Read it carefully before you invest or send money. A Representative from The Business Benefits Group / IFG will contact you to provide requested information. Representatives of AIC do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation. 

I chose not to discuss the difference between stock and mutual companies here because I don’t think it’s very relevant to the conversation. You aren’t clear why you think it’s important, but my best guess is that you think your returns are more guaranteed with a mutual company. I would agree that you’re better off with a mutual company, but you’re still hinging a large amount of money on the prospects and policies of a single company. It is still undiversified and still exposes you to a lot of unnecessary risk. If you have a different reason for bringing up this distinction I would be interested to hear it.

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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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Hi Christine. First of all, thank your for stopping by. Second of all, please don’t beat yourself up over this. Life insurance salesmen are trained to make these policies sound REALLY attractive and their arguments can be quite persuasive. I actually found myself feeling close to convinced about one of these policies a few years ago before coming to my senses.
I only read the first couple of paragraphs here but so far what you are talking about is universal insurance, not whole life. Whole life builds cash value but the policy holder doesn’t get that money….they can take it out on a loan but they have to pay it back with a small interest rate…the cash value a whole life policy collects is what keeps the policy going and it is why they are able to pay out everything they promised you. No one anywhere ever would say hey how about you pay me ten dollars and I will give you twenty in a week….the whole life policy builds up cash value and between that and your premiums they are able to make the money to cover the whole cost. Term life is exactly what its name says…it only last for a term and will be terminated within a set period of time (usually like 20 years) so when you buy it at 20 and live till 50 you don’t get the money you just paid almost 2,000 a year for nothing….but whole life has to pay out it covers you for your whole life. The reason that the term is so much cheaper is that statistically the person will not die in that set time so they are able to make money off the people who don’t die to cover the select few that do and when you are 50 trying to buy term it is crazy expensive. Everyone has their own opinions and I understand that I am just 99% sure that you are talking about universal insurance which is a mix of term and whole and will soon be illegal because of how shady it is.
It is not a valid argument to me to say that the “administrative pain in the ass” is a reason to ignore the tactic. It’s a pretty simple procedure and certainly not worth paying all the extra costs of a whole life approach just to avoid. Yes, you have to be careful if you have Traditional IRAs, but there are ways around that too. No, it’s not for everyone, but I would much rather try to make the backdoor Roth work first than immediately jump to whole life.
Any death benefit of the policy will not be payable if the named insured commits suicide or if anyone covered by additional riders commits suicide, while sane or insane, within two years from the policy or rider effective date. All premiums paid will be refunded, less any indebtedness. The following information only applies to the Accelerated Death Payment, Waiver of Premium Benefit Rider, and Accidental-Death Benefit Rider:
Internationally known financial adviser Suze Orman strongly believes that if you want insurance, buy term; if you want an investment, buy an investment, not insurance. Don't mix the two. Unless you're a very savvy investor and understand all the implications of the various types of life insurance policies, you most likely should purchase term life insurance.
Also, you said whole life is not an investment. But by definition, it is an investment. An investment is simply where you put money into something expecting a return in the future. And whole life insurance does provide that. Plus if it is a mutual company as mine is then you become a partial owner which means you get to vote and help the business make good business decisions.

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Any person acting as an insurance agent or broker must be licensed to do so by the state or jurisdiction that the person is operating in. Whereas states previously would issue separate licenses for agents and brokers, most states now issue a single producer license regardless if the person is acting on behalf of the insured or insurer. The term insurance producers is used to reference both insurance agents and brokers.
Insurance may also be purchased through an agent. A tied agent, working exclusively with one insurer, represents the insurance company from whom the policyholder buys (while a free agent sells policies of various insurance companies). Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company. Agents generally cannot offer as broad a range of selection compared to an insurance broker.
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Full Circle, one time I thought whole life insurance was great. Then I cashed it in, bought at least 5 new automobiles, a house, a couple motorcycles and more bullshit. Then I learned how to properly use life insurance as a bank, instead of borrowing money from a bank, I borrow the money from myself and pay myself back what I would have paid banks. I get to collect all the interest I would have paid the banks. I get to grow my money tax free. I get to pass my hard earned money on to my family tax free. The key is understanding Whole life vs creating your own banking system. 

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Finally, if you’ve already handled all of your other financial goals and you still have disposable income leftover and you want to use that money to buy a permanent life insurance policy that will leave an inheritance for your children, by all means go ahead and do so. But the vast majority of people will never be in that situation, and even if you are in that situation you will likely want a policy that’s specifically tailored to minimize fees and accomplish the goals you want to accomplish. Most whole life insurance policies will still be inefficient and unnecessarily expensive.
We were sold a whole life policy from Mass Mutual for my husband, but we also have term insurance on both of us. We are on a 10 year track to pay off the policy and have three years left. Is it still a “bad investment” once the policy is paid off? Should we be expecting those 0.74% yearly returns for a fully paid-off policy? Or does that apply only if one is paying premiums on it for the next 30+ years? Whole life insurance appealed to me because I am extremely squeamish about the stock market and don’t want to pay a financial planner on a regular basis. I’d rather have low (but not 0.74%), steady returns than high risk/high reward investments. Did we still make a mistake by buying whole life?
Rules of ethics. (You might say this is a simple case of “buyer beware,” but as government investigations have indicated, it’s the misrepresentation that’s the problem. Such investigations have found that brokers do not always consider their clients’ best interests, instead acting primarily in their own interests and those of their favored insurance companies.)
Boomer Benefits’ office is easy to find on Google places. We are staffed Monday – Friday and some Saturdays so that you can reach us by phone, email, or in person when you need help. Some agents who sell Medicare products work by themselves out of their homes. Unfortunately, that means that whenever the agent is in a meeting with another client, your call goes straight to voicemail. Who knows how long you will wait for a return call? It’s in your best interest to work with a bigger Medicare broker that has numerous representative standing by to take your call. Our agents will know you and care about you.
When you start your search, you can pick an independent agent or a captive (or direct) agent. An independent agent may sell policies from many different companies. A captive agent sells insurance for only one company. Independent and captive agents represent insurance companies and receive a commission from the insurance company for the sale of its policies.
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
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.
Thanks for reaching out Jean! The truth is that there are a lot of variables in play here that make it hard to give you a direct answer. On the one hand, a $43k surrender value after 25 years is not a great return, assuming that you haven’t taken any loans out and there haven’t been any other interruptions in your premium payments. A guaranteed 7.6% return is also really appealing. But the answer also depends on your overall insurance needs, your other goals, the expected performance of this policy going forward, and other investment opportunities available to you. Those are the things I would look at if I were you. And if you’d like, I would be happy to talk things over in more detail. In any case, I wish you the best of luck!
A few comments… You shouldn’t ever be buying whole life insurance for purely for the reason of investing, you buy any life insurance because you need life insurance, the investment component is secondary. So not sure why we are analyzing it purely as an investment (I actually do know why, because some agents try to sell it this way, and Matt is trying to help them avoid a pitfall).
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.
I’ll start with the whole life policy a financial planner is currently trying to sell me on. It does seem to be too good to be true, so I’m trying to figure out what’s wrong with it. He claims that I put $1k in it each month for 20 years. At around the 10 year mark, the “cash value” meets the amount of money I’ve put into it, and begins to exceed it. After 20 years, I’ve put $240k in, and it’s worth around $550k. That’s the amount I could take out if I wanted to close the thing. And I *believe* he said that’s tax free, but maybe I’m wrong about that… he also may have said something about instead withdrawing a set amount of around $55k each year and that’s tax free? Not sure. But just looking at these numbers and ignoring the death benefit, is that not a good investment? I’ve been maxing out my 401k and investing in mutual funds for more than 10 years and I’d estimate for every dollar I’ve put in, I now have about $1.20. I’m sure some of that has been poor allocation of funds, but even taking that into consideration, it seems pretty pathetic compared to the option of more than doubling my money in 20 years (looking at the $550k out with $240k in). What am I missing?
As for it being undiversified, NO investment by itself is completely diversified. Cash value life insurance can ADD diversity and security to a portfolio (the top companies have incredible financial strength, good policies can have a solid conservative return while meeting a life insurance need). Diversification is an issue with cash value life insurance if it makes up a good portion of your assets, and if it would, you shouldn’t be buying it.
Thanks Paul. I 100% agree that it’s important to read the fine print and know the terms of your contract before signing on. Convertibility is an option that most quality term policies will have, but you should understand the specifics ahead of time. So I don’t think my statement was inaccurate, as much as you made the smart added comment to “read the fine print”. Thanks for the input!
Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
Agents and brokers act as intermediaries between you (the insurance buyer) and your insurers. Each has a legal duty to help you obtain appropriate coverage at a reasonable price. Each must have a license to distribute the type of insurance he or she is selling. An agent or broker must also adhere to the regulations enforced by your state insurance department.
But a question for you. Do you have clients that have had an overfunded life policy when markets are tanking and can use that cash to float their business and still earn money while their money is loaned out? Talk about a winner. I have a lot of clients that are in business today because of their policies (and the people still employed). Especially when the interest can be written off. But then again some super conservative clients love them. I guess I’m just bummed you didn’t go any further but I am on a site not geared for my clientele. So here is another free post to build up the conversation and the controversy so you can cash in on the traffic.

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