In the United States, brokers are regulated by the state (or states) in which they work. Most brokers are required to have an insurance broker license, which involves taking courses and passing an examination. Each state has different requirements for insurance brokers, which a broker must meet to be licensed in that state. Most states require insurance brokers to take continuing education courses in order to maintain their license.
I mentioned investment allocations earlier. There are other ways to get stock market returns with Whole life insurance as well. I am not talking about “Variable Life Insurance” either. Those who purchase these policies loose the benefit of having an insurance company retain some of their investment risk. To obtain market returns, a person simply invests in long call options on the broad market. In doing this, an investor earns stock market returns but transfers their downside risk to the owner of the index (SPY or SPX). The options will be worthless or appreciate (sometimes 500%). Coupled with the guarantees of the over funded cash value life policy, their portfolios will not decrease below a certain point in any given time but they can destroy the market in up years. This all takes 10 minutes to manage and about $20 in cost (compared to an asset manager charging a percentage,) Because life insurance is guaranteed to maintain its value, it protects the remaining money that is not tied up when directly invested in stocks and is available to that an investor can be “greedy when others are fearful” (Warren Buffet) or “buy low while others are selling”.

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Also, the case study you reference is interesting for several reasons. First of all, it’s a single example out of what I assume are millions, and there’s therefore no real way to determine whether it’s actually representative for anyone else. Second, they actually ask whether it would have been better to buy term and invest the difference, and the proceed to say it’s not worth evaluating. Funny!
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..
Are you asking about people with terminal illnesses? If so, then I’ll admit that my knowledge in that particular area is limited. But my understanding is that a term policy would be very difficult if not impossible to find and there are some special kind of whole life policies you may be able to get. If that’s the situation you’re asking about, then it’s really not a whole life vs. IRA decision. It’s a decision on whether you should invest or whether you should insure. That’s a very different question than what’s being discussed in this article.

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With that out of the way, I’ll point out that I would not even consider selling my best friend whole life. It’s a rip-off in his hands and I value my friendships too strongly to alienate those I love by selling them whole life. I would however sell it to my wife! Why is that? Well, because the commissions on these policies are HUGE. Between the First Year Commission and the override, if I buy the policy for myself or my wife and just roll the commission into additional whole life, it begins to look attractive. That compounding makes it attractive for insurance salespeople in a way that is simply not available for the average consumer. So when your insurance guy says “oh yeah, I own this policy” it’s probably true…but the value proposition is very different for each of you. Beyond this particular case, I’m not a fan of whole life in just about any situation. Go figure then that half the people who attend the Million Dollar Round Table conferences generally sell a lot of this crap. Take from that what you will…
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.
Nice write up. I personally have been able to save with an independent agent. A big concern of mine was finding an agent that worked with more reputable insurance carriers. There seems to be alot of agents who will use non-standard insurance carriers to provide cheaper coverage. I've heard some horror stories about customer service, sub-par adjustments, and claims services. I'd definitely do alot of research into the insurance companies the independent agent is appointed with.

The sale of life insurance in the U.S. began in the 1760s. The Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests organized a similar fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived. In the 1870s, military officers banded together to found both the Army (AAFMAA) and the Navy Mutual Aid Association (Navy Mutual), inspired by the plight of widows and orphans left stranded in the West after the Battle of the Little Big Horn, and of the families of U.S. sailors who died at sea.
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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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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. 

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.
Your point about eventually not having to pay premiums is a common one used by agents, and in some cases that does happen. But in many cases it doesn’t, or at least it doesn’t happen as early as is illustrated and the policyholder is left paying premiums for longer than they had anticipated. The point is that this is not a guarantee, and it’s important for people to understand that.
Also a comment on the “non-guaranteed” argument. Yes if you do business with a company not named Mass Mutual, Northwestern Mutual, or New York Life, you are likely getting ripped off. But if you work with a reputable company, they have paid dividends every year for 150+ years. So yes, legally speaking, returns are not guaranteed, but every year for 150 years sounds pretty good to me. Just as asset class diversification is important, so is tax and risk diversification, which permanent insurance provides.

^ Anzovin, Steven, Famous First Facts 2000, item # 2422, H. W. Wilson Company, ISBN 0-8242-0958-3 p. 121 The first life insurance company known of record was founded in 1706 by the Bishop of Oxford and the financier Thomas Allen in London, England. The company, called the Amicable Society for a Perpetual Assurance Office, collected annual premiums from policyholders and paid the nominees of deceased members from a common fund.
Pollution insurance usually takes the form of first-party coverage for contamination of insured property either by external or on-site sources. Coverage is also afforded for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded.
Insurers will often use insurance agents to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. The existence and success of companies using insurance agents is likely due to improved and personalized service. Companies also use Broking firms, Banks and other corporate entities (like Self Help Groups, Microfinance Institutions, NGOs, etc.) to market their products.[26]
Hi, Matt. My parents are actually talking to an agent to get the whole life insurance and their premium monthly is about $1000 so which makes them to pay $120000 (since it’s the 10 yr plan) and the agent presented that the guaranteed value will be $250000. I have very little knowledge about the whole life insurance plan but wouldn’t it be easier for them to just get it and be insured with that guaranteed value if they are not the type to find where to invest and all that? or is it something that they shouldn’t relay on.. they are doing it for more their retirement and asked me for help but i am very confused about this whole life plan. Thanks!
Pre-need life insurance policies are limited premium payment, whole life policies that are usually purchased by older applicants, though they are available to everyone. This type of insurance is designed to cover specific funeral expenses that the applicant has designated in a contract with a funeral home. The policy's death benefit is initially based on the funeral cost at the time of prearrangement, and it then typically grows as interest is credited. In exchange for the policy owner's designation, the funeral home typically guarantees that the proceeds will cover the cost of the funeral, no matter when death occurs. Excess proceeds may go either to the insured's estate, a designated beneficiary, or the funeral home as set forth in the contract. Purchasers of these policies usually make a single premium payment at the time of prearrangement, but some companies also allow premiums to be paid over as much as ten years.

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With that said, I honestly think that the best thing you can do for your son is work as hard as you can to put the money you do make to work building a solid financial foundation for yourself and, when he’s old enough, involve him in the process so that he can learn real world money lessons at a young age and be more prepared to deal with it when he’s on his own.
Independent Agents - Independent insurance agents function identically to insurance brokers in that they represent multiple insurance carriers. The primary difference between brokers and independent agents is that insurance brokerage companies are often larger than independent insurance agencies. However, independent agents and brokers approach the business in the same way, which is that they represent the customer.
Retrospectively rated insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.
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.
Hi Matt – my 3 kids (now all in their 20’s) had whole life policies opened for them by Grandpa 20 years ago. He has been paying a fixed annual payment of $240, but it’s now up to me (the kids are just starting out and don’t have a cent to spare). My first thought is to have them cancel and take the cash value (~7k each), but in looking at the policies (for the first time) it looks like at this point they are getting a decent cash value return – each of the last 3 years it’s been about 4.2% PLUS the $240. AND the dividend the last few years has been almost as much as the annual payment – but has been buying more insurance (that they don’t need). Is it possible that if you suffer through the first 20 years, it then becomes a good investment? especially if I redirect the dividends to the cash value or a premium reduction? Great article by the way.
Regarding pension vs registered accounts: It is hard to know what is better, relying on your pension or relying on an individually held mutual fund account (or some variation thereof using other securities). This would require a close reading of the pension and securities legislation in your region. For us in Canada, a defined benefit pension (prescribed benefits upon retirement based on a formula where the employer is responsible for funding any shortfall) can be incredibly enticing due to the guarantees attached to them. It is the preferred pension and stacks up really well against defined contribution pensions (where employers match the contributions of employees to at least a certain degree and where the account grows until retirement and the pensioner draws down the account and is burdened with any shortfall) but defined benefit plans are going the way of the dodo over here. It’s still available to government employees but most private employers don’t want to take on the risk of having to meet funding requirements. That’s a huge liability on the balance sheet. In any case, pensions have a few benefits over individual savings vehicles. First, they benefit from reduced management fee pricing, thereby improving returns marginally over the course of fund accumulation. Second, they benefit from a longer investment horizon since they are always looking many years in the future as their pension liabilities are long-term by definition. Third, actuaries are required to evaluate pensions regularly to make sure funding targets are established and followed.
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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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Matt, may I ask you a question? I have a 25-year old $100K whole life policy with a surrender value of $43K, of which $21K is taxable. I’m 43 years old. Dividends now more than cover the $900/yr premium. Does it make sense to hold on to this? I am torn! I could surrender it and pay off a second mortgage which is at 7.6%… Thank you in advance. Love your site!

A corollary to the liquidity issue is the concept of flexibility of your contributions. Even with a 401(k) or IRA, where you can’t access your money without penalty, you can always choose to stop contributing for a period of time if you need that money for other purposes. In the meantime, your account stays intact, steadily earning tax-deferred returns on the money you’ve already put in.
Pre-need life insurance policies are limited premium payment, whole life policies that are usually purchased by older applicants, though they are available to everyone. This type of insurance is designed to cover specific funeral expenses that the applicant has designated in a contract with a funeral home. The policy's death benefit is initially based on the funeral cost at the time of prearrangement, and it then typically grows as interest is credited. In exchange for the policy owner's designation, the funeral home typically guarantees that the proceeds will cover the cost of the funeral, no matter when death occurs. Excess proceeds may go either to the insured's estate, a designated beneficiary, or the funeral home as set forth in the contract. Purchasers of these policies usually make a single premium payment at the time of prearrangement, but some companies also allow premiums to be paid over as much as ten years.

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Of course, it’s always more efficient to just save the money themselves. However, many people don’t and people often want to make sure that the money will be there when they are old and can no longer make decisions for themselves. Whole life is one way to do that. We chose term because it made more sense for us and it was so cheap since we were young when we bought. However, I’m just presenting the alternate viewpoint coming from someone who has filed many, many whole life policies on behalf of grateful families.
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.
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Universal life insurance addresses the perceived disadvantages of whole life—namely that premiums and death benefits are fixed. With universal life, both the premiums and death benefit are flexible. With the exception of guaranteed-death-benefit universal life policies, universal life policies trade their greater flexibility off for fewer guarantees.

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3 Assumes the average cost of a gallon of gasoline is $2.37**. Comparison is based on the average weekly premium for Nebraska Payroll Premium rates industry Class A; Aflac Life Solutions WHOLE LIFE POLICY - Series A68100; Female non-smoker age 18-21. Premiums may vary by coverage type, account, state of issue, and the election of additional/optional benefits.

Insurance involves pooling funds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be an insurable risk, the risk insured against must meet certain characteristics. Insurance as a financial intermediary is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.[15]
Social insurance can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that requires participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system and the welfare state. This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
MetLife has become aware of a recent phishing attack against some of our customers. ‘Phishing’ is a fraudulent attempt to obtain an individual’s personal information, often through a misleading email, text or other online communication. Keeping your personal information secure is a top priority of MetLife. That's why we encourage you to take precautions to protect your personal data, and why we do not ask you to verify your personal or account information by email, text message or online. If you suspect you received a phishing email, please forward it to: phish@metlife.com. Delete the email after you forward it, and do not click on any links it contains. If you believe you entered information into a linked website, change your login information immediately. For helpful hints to protect your personal information, visit the following website: https://www.consumer.ftc.gov/articles/0003-phishing

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Finally, IF you decide that these are not the right policies for you, it’s generally better to cancel sooner rather than later in order to minimize the amount of premiums you pay. You should even look at your policy to see whether you’re still within an initial period where you could get all your payments back. Again, I’m not saying that you should cancel, just that if you do want to cancel it’s better to act quickly.

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A corollary to the liquidity issue is the concept of flexibility of your contributions. Even with a 401(k) or IRA, where you can’t access your money without penalty, you can always choose to stop contributing for a period of time if you need that money for other purposes. In the meantime, your account stays intact, steadily earning tax-deferred returns on the money you’ve already put in.

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Great read (http://momanddadmoney.com/insurance-and-investing-dont-play-well-together/ as well). Really taught me a lot. I’m a growing professional and a ‘friend’ tried to sell me a whole life participating life insurance. Like I believe you mention several times, all the ‘pros’ sounded really attractive. It actually made it sound stupid not to buy it. However, this alone made me hesitate as we all know what usually happens when something is too good to believe. I did a number of searches and read a few articles before stumbling on to yours. Excellently written providing a comprehensive explanation in terms that even a layman (i.e. me) could understand. Thank you as you just saved me from making a very big mistake. I hope others are lucky enough like me to happen upon your article before they make their decisions.
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.
For example, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying. Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.

Accidental death insurance is a type of limited life insurance that is designed to cover the insured should they die as the result of an accident. "Accidents" run the gamut from abrasions to catastrophes but normally do not include deaths resulting from non-accident-related health problems or suicide. Because they only cover accidents, these policies are much less expensive than other life insurance policies.


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When shopping for insurance, there are several key things that customers look at, including cost, speed, ease, security of personal data, and peace of mind that all essentials are covered. Working with an insurance broker can help get you the insurance you need at the best price. Brokers deal with a wide range of products and services and have the qualifications needed to recommend the policies that best suit your needs. As most brokers work for smaller companies that represent big insurance companies, the service is typically more personalized, meaning better quality support.
I have a Dividend Option Term Rider that will expire soon. I am 57 years old. New York life wrote to me stating I can change over to whole life insurance without having to answer health questions or take a physical exam. What are the advantages or disadvantages of this for someone of my age? I currently have a 401K. Would my money be better invested in that or elsewhere? Thanks.

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