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Additionally, this can be a great way to compliment a financial plan that is linked to the markets performance. When I am in my 60’s nearing retirement and have a good amount of cash value in my policy–I will not be terribly worried about the market performance (401(k)s/mutual funds/ IRA/ stocks). I know that flucuations in the market will occur and if a recession happens when I am 62, I will use my cash and policy cash value to hold me over until the markets recover. Again, my aim is not to buy high and sell low, it is to buy low and sell high.
So let me ask, does she have a need for life insurance? That is, what would the insurance proceeds actually be used for? It may be that she no longer has a need and could simply unload the policy. If that’s the case, I have heard of people having some luck selling these policies to a third party. It’s not something I have experience with, but I could ask around for you if you’d like.
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Base commission is the “normal” commission earned on insurance policies. Base commission is expressed in terms of a percentage of premium and varies by type of coverage. For instance, an agent might earn say, a 10 percent commission on workers compensation policies and 15 percent on general liability policies. Suppose that you purchase a liability policy from the Elite Insurance Company through the Jones Agency, an independent agent. Jones earns a 15 percent commission on general liability policies.

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Lastly I believe you said your return was only .74% which I agree is low but just because you had a bad experience with a bad policy doesn’t mean all other whole life policies are the same. Different companies provide different returns and even different coverages. You’re being very general when more specific information is much more relevant in my opinion.


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?
Keep in mind though that the interest rate on these insurance loans are among the best rates you can get anywhere for access to money like prime plus 1 or 2 percent, and your principal is untouched and continues to grow. Who would you rather borrow from? Yourself/insurance co at prime plus 1% or 2% or from the bank at prime plus 6%+ So I think it is more misleading to harp on the minimal interest rate your paying on a fraction of the value of the cash value…which again is growing at the rate of the dividends.
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Additionally, this can be a great way to compliment a financial plan that is linked to the markets performance. When I am in my 60’s nearing retirement and have a good amount of cash value in my policy–I will not be terribly worried about the market performance (401(k)s/mutual funds/ IRA/ stocks). I know that flucuations in the market will occur and if a recession happens when I am 62, I will use my cash and policy cash value to hold me over until the markets recover. Again, my aim is not to buy high and sell low, it is to buy low and sell high.
The upshot is that the taxation of a 401(k)/Traditional IRA down the line is often beneficial to being taxed up front. Certainly not always, but often. And in any case, I would challenge you to find a financial planner who does not make money off the sale of whole life insurance who would recommend it as an investment tool before you have maxed out your dedicated retirement accounts.

If one were to buy a long dated bond with a yield of 4%, and interest rates go up, one could actually end up with a loss if bond not held to maturity. On the other hand, if one were to OVERFUND a participating Whole Life policy, the CASH VALUE IRR over 20 years would be around 4% (probably slightly above) based on current dividend scales. Yet if long term rates rise, so will the returns in the policy. As long as premiums are paid, the cash value in any given time will NEVER be less than the cash value a year earlier.


The ~4% ROR initially feels like an acceptable return given limited principal risk, tax advantages and the current returns on alternative safe investments. I personally feel that the market will be more susceptible to bouts of volatility and higher levels of inter-asset correlation in the future. The idea of a fixed investment with stable returns in the distribution phase of retirement is important to me.
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With that said, yes the interest rates are good, but it’s not really appropriate to compare the interest rate on a whole life loan to interest rates from other sources. With whole life, you’re borrowing YOUR OWN money that you already contributed after-tax. That’s very different from borrowing from a bank, where the money was never yours. It’s much more appropriate to compare the long-term, cumulative interest rate to the long-term after-tax returns you could get from other investments. That comparison looks very different and often much less beneficial for whole life.
I did an in-depth analysis awhile back showing the exact opposite of what you presented here. If you adjust for risk tolerance, and look at the best policies on the market, they’re not only competitive, they’re good. And, what I found corresponds with the research currently available about whole life vs BTID. Namely, sometimes, they’re better than a traditional 60/40 split portfolio (though I’d be hesitant to make that comparison as a blanket rule).
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.
When comparing car insurance quotes, it helps to compare apples to apples; in other words, you want to be sure that the quotes you get are for identical - or at least very similar - auto insurance policies. Once you have a better idea of the type of coverage you’re looking for in a policy, this will be easy. To better understand coverage types start here
Needs it helps meet: Universal life insurance is most often used as part of a flexible estate planning strategy to help preserve wealth to be transferred to beneficiaries. Another common use is long term income replacement, where the need extends beyond working years. Some universal life insurance product designs focus on providing both death benefit coverage and building cash value while others focus on providing guaranteed death benefit coverage.
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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It's difficult to apply a rule of thumb because the amount of life insurance you need depends on factors such as your other sources of income, how many dependents you have, your debts, and your lifestyle. However, a general guideline you may find useful is to obtain a policy that would be worth between five and 10 times your annual salary in the event of your death. Beyond that guideline, you may want to consider consulting a financial planning professional to determine how much coverage to obtain.
You can own both whole life and term life policies at the same time. People who are looking at this option typically already have a whole life policy. However, they may find that they want additional short-term insurance coverage such as for 10 years. In this instance, buying a term policy for the amount of life insurance you need for that extra protection can be a good solution.

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.
The cheapest car insurance, period, will likely be the minimum coverage required in your state. In most states this is liability insurance only, which covers property damage and medical bills for others due to accidents you cause. Some states also require uninsured and underinsured motorist coverage, which pay for your injuries or damage if an at-fault driver doesn’t have enough insurance.
The cheapest car insurance, period, will likely be the minimum coverage required in your state. In most states this is liability insurance only, which covers property damage and medical bills for others due to accidents you cause. Some states also require uninsured and underinsured motorist coverage, which pay for your injuries or damage if an at-fault driver doesn’t have enough insurance.
There have been enough people screwed over by stock insurance company agents to justify this article. However, before jumping to conclusions about Whole Life, I would recommend everyone research the business structure of a “Mutual Insurance Company” such as MassMutual or Northwest Mutual. These companies are literally owned by the policyholders and have historically paid dividends that equal the premiums of a whole life policy within 1.5 decades. They also typically perform better than the illustrations. It’s not necessarily an “Investment,” but sacrificing higher returns for security in the form of liquid cash and life insurance coverage seems like a wise decision to me.
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.
The second is that I’ve heard enough horror stories about indexed life insurance in general to be skeptical. It’s not that it can’t work, it’s that there are plenty of examples of it underperforming, having a catch that wasn’t made clear up front, and other instances where it just doesn’t work the way it was sold to work. Any time something is sold as being able to pay for any financial goal no matter the market conditions, it’s usually too good to be true.
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.
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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Your comment on term insurance allowing you to convert at anytime is inaccurate. You must read the conversion language as it is designed to protect the insurance company. Met life for example states ” During the conversion period shown in the policy schedule you can convert this policy, while it is in force with all premiums paid, to a new policy–On a plan of permanent insurance, with a level face amount, available on the policy date of the new policy.”. Some term plans won’t let you convert after 10 years or if your over age 65. Imagine having a 20year $1,000,000 term plan and getting cancer in the 19th year. You want to convert but find out the conversion period ended in the 10th year. Also, the company typically determines which plan you can convert to. Maybe its just 2 plans out of the 8 they offer. What is the likelyhood of those being the best 2 plans available? Alas, no one reads the contract or the prospectus for that matter. My dad always said “the big print givith and the small print taketh away.”

Limited risk of catastrophically large losses: Insurable losses are ideally independent and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capital constrains insurers' ability to sell earthquake insurance as well as wind insurance in hurricane zones. In the United States, flood risk is insured by the federal government. In commercial fire insurance, it is possible to find single properties whose total exposed value is well in excess of any individual insurer's capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.
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I’m in the process of evaluating a whole life insurance with an Early Critical Illness Advance cover. The reason for doing so is that I’ve come across many cases of colleagues with failing health in my work recently, and was told that there is a 33% that anyone can get cancer. And I fear, I could be in that statistics. So, the insurance is to give me a payout, in the event I can no longer work and earn a salary, so that at least I could still live comfortably.
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.
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):
A Roth IRA certainly gives you a lot more investment options, with the added benefit of not starting with an account balance of essentially $0. It’s important to understand though that there are always risks involved with investing, and you could lose money within a Roth IRA too. Still, while I don’t know the specifics of your situation it will generally be a good idea to go with something like a Roth IRA before considering any kind of life insurance.
Hi Matt, I’m a Life Insurance agent and Advisor and I work for New York Life. Some of your points make sense but saying that whole life is bad is a little off. It is good for savings toward your retirement and will do a lot more than a savings account, money market or cd will ever do. So to agree with you to a certain extent I’ll explain what I do for younger individuals, I’ll sell a whole life policy and later it with term insurance. Basically the whole life will build a cash value with guaranteed returns and the term insurance is in the event of an untimely death. $1,000,000 of term can be as low as $50 a month. Also NY Life has never guaranteed dividends but has paid them out for 159 years, even during the Great Depression. Our company is backed by a $180 billion general account and a $19 billion surplus. So yeah, we guarantee your returns. And we don’t just sell life insurance, that’s why our agents like myself have life, series 6,7,63,66,65 licenses, if our clients, not customers want more than life, we diversify for them into brokerage or anything else they want. Just puttin my 2 cents in.
The IRS regulation on how much can be put in over 7 year period to not cause a whole life policy to be considered a Modified Endowment Contract. Additionally, many long standing highly rated institutions will limit the amount of OPP that can be dumped into the policy over a given period. Why is that? Because people will use whole life in low interest environments with the intention of withdrawing in the event of a market change.

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As a 31-year-old, I think about how many changes I’ve made over the past 10 years as I’ve grown wiser (or just changed my mind). Whether it’s mutual funds, investment companies, credit cards I’ve added or removed, banks, stocks/bonds, heck even jobs and location! The only things I want to be tied to at age 65 are my wife and kids. To think you can purchase a product like this and still feel you want to stick with that policy and company in 30+ years is insane. Do I really still want to be with whatever insurance company I purchased the policy with? Even if my Roth IRA gets no better returns, I like the peace of mind that I can move those funds around between brokerages, mutual funds, and so on. Even a term policy you can cancel or get a different one (assuming you still are in good health) with no dire consequences. I can’t think of any other product in finance or elsewhere that you’re supposed to stick with the same one for life.
Thanks for reaching out Bob. There’s a lot that goes into this decision with the position that you’re in, and the right choice really depends on your personal financial situation and what you’re trying to achieve. I would lean towards trusting the advice of an advisor who doesn’t get paid to sell whole life, since that advice is likely to be more objective. It sounds like you’re already working with a couple of advisors, but if you’d like another opinion I would search NAPFA and/or Garrett Planning Network to find a fee-only financial planner in your area.
I’m in the process of evaluating a whole life insurance with an Early Critical Illness Advance cover. The reason for doing so is that I’ve come across many cases of colleagues with failing health in my work recently, and was told that there is a 33% that anyone can get cancer. And I fear, I could be in that statistics. So, the insurance is to give me a payout, in the event I can no longer work and earn a salary, so that at least I could still live comfortably.

Second, what that means is that your decision should be based solely on how you expect each option to perform going forward. You can evaluate what you expect to get from the whole life policy going forward vs. what you might expect from other options, and then decide which options give you the best chance of achieving your personal goals. I can’t honestly answer that question for you, but I hope some of the information in this article and others throughout the site do give you a sense of your options.
Also, during your life if the policy pays 4% and you take a loan against the policy (for any reason) the net effect is that you are paying yourself the 4%, and perhaps 1 or 2% to the insurance company. CSV collateral loans typically are cheaper than unsecured loans, or auto loans. Used properly the whole life insurance contract is one of the most versatile wealth building tools.

Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts.
With that said, yes the interest rates are good, but it’s not really appropriate to compare the interest rate on a whole life loan to interest rates from other sources. With whole life, you’re borrowing YOUR OWN money that you already contributed after-tax. That’s very different from borrowing from a bank, where the money was never yours. It’s much more appropriate to compare the long-term, cumulative interest rate to the long-term after-tax returns you could get from other investments. That comparison looks very different and often much less beneficial for whole life.
But here is the key: the most astute line in the article is “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. It is a useful product in a limited number of cases.”
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Your post on why whole life insurance is a bad investment was extremely informative. My father in law is deciding whether to buy a whole life policy because his term life premium is going up and he only has 5 years left until the policy expires. After reading your post and looking closely at the insurance companies offer my wife and I are advising to do something else with their money. Thanks and keep it up!

I disagree that an insurance policy has to pay for it to be valuable. Its purpose is to provide you with protection from scenarios you couldn’t otherwise handle, not to pay you money no matter what. Is your emergency fund worthless if you never have an emergency? Would you pay extra for an auto insurance policy that guaranteed you money for a brand new car (at the cost of the new car, not the value of your old on) once yours is done? Even if was more cost-efficient to save the money yourself? Again, I do agree that there are situations where the insurance component of a whole life policy can be valuable. I will never argue that it is a worthless product. I just think that many times it is sold to people who have options for meeting their needs in better ways. That doesn’t make it evil, just inefficient for many circumstances.

Hi James. Sorry for the late reply! So I’ll be honest that I’m not an expert on this exact strategy, but my understanding is that it’s generally something you might look to implement later in life, closer to when you’re actually making the decision about what type of pension payout you want. That’s simply because there are a lot of variables involved that could make it either more or less advantageous, and if you’re in your early 30s it’s just hard to know what all of those variables will look like 30 years down the line.


So our financial adviser is telling us we should have whole life insurance because we can use the cash amount, tax free. We have been contributing to Roth IRAs, but will now not be able to due to our AGI. We could contribute to IRAs, but we’ll be in a higher tax bracket. We’ve been maxing out our 401k accounts, and have investments in the stock market. What other options might we have for retirement?
Agents and brokers both earn the bulk of their income through commissions earned on the sales they make. An agent working for one company can enjoy the stability that comes from having one compensation plan. A broker who works with a number of insurance companies can experience income variances, depending on which company's products she sells. However, brokers have the flexibility to write business through the companies that offer the highest commission rates, assuming they provide the products that meet their clients' needs.

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.


Good question Lisa. I’m not an expert on Northwestern Mutual’s policies so I can’t give you a precise answer. But I believe that their adjustable comp life insurance policies allow you to combine term and whole life insurance in various proportions based on your desired outcome. In other words, it’s a more flexible policy than typical whole life insurance.
†One Day PaySM is available for certain individual claims submitted online through the Aflac SmartClaim® process. Claims may be eligible for One Day Pay processing if submitted online through Aflac SmartClaim®, including all required documentation, by 3 p.m. ET. Documentation requirements vary by type of claim; please review requirements for your claim(s) carefully. Aflac SmartClaim® is available for claims on most individual Accident, Cancer, Hospital, Specified Health, and Intensive Care policies. Processing time is based on business days after all required documentation needed to render a decision is received and no further validation and/or research is required. Individual Company Statistic, 2018.
None of the below should be taken as actionable advice. You should consult someone who you know and trust before making any important financial decisions. This is just a window into how I made my decision, so you can see some things I considered. I might be wrong about some of these things, but everything I’ve written below is what I believe today based on my current understanding and the guidance of my own advisers. Please note that I do also max out my 401k and IRAs and keep a modest taxable account as well, so whole life is just one piece (albeit a fairly sizable one) of my portfolio.
I’m sorry you’re finding yourself in this situation Debbie, but the good news is that you have options. I would first ask your current insurance company for an in-force illustration. This will show you exactly what your cash surrender value is right now, which is the amount of money you would walk away with today if you canceled the policy. It will also show you how that cash surrender value is expected to grow in the future.
Muslim scholars have varying opinions about life insurance. Life insurance policies that earn interest (or guaranteed bonus/NAV) are generally considered to be a form of riba[60] (usury) and some consider even policies that do not earn interest to be a form of gharar (speculation). Some argue that gharar is not present due to the actuarial science behind the underwriting.[61] Jewish rabbinical scholars also have expressed reservations regarding insurance as an avoidance of God's will but most find it acceptable in moderation.[62]
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 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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