Underfunded whole life insurance may have only performed 4%. However, designed with additional premiums they have actually earned closer to 7% in the 30 years from 1984-2013. Even during the period between 1977 and 1982 where interest rates shot through the roof and bond holders didn’t recapture their losses for several years, over funder whole life returned 35% after the cost of insurance is considered.
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Universal life insurance is a type of permanent life insurance designed to provide lifetime coverage. Unlike whole life insurance, universal life insurance policies are flexible and may allow you to raise or lower your premium payment or coverage amounts throughout your lifetime. Additionally, due to its lifetime coverage, universal life typically has higher premium payments than term.
First, although there are no taxes, there is interest. When you borrow from your policy, interest starts accruing from day 1 and keeps accruing until you pay back the loan. If you’re using it for retirement purposes, are you going to pay back the loan? Of course not. So the interest keeps accruing. And that interest applies to all money withdrawn, including your contributions, which were already taxed.

Thank you for all your articles…very insightful. My husband and I had a very similar situation as you and your wife when you first met with a “financial planner” (aka insurance salesman). Now, we look at having paid 8 years of adjustable comp life for our policies plus policies for both of our children (5 and 2). We feel like we made a mistake and, as you know, were swayed by the talk of retirement investment and “throwing money away”. So now, we wonder…should we go paid up on our policies, which would drop them both down substantially, but we no longer would have to pay into them (and get more term to cover the difference) and cancel our kids policies?
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.

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