My argument is based on the fact that whole life insurance is often sold as an investment, and therefore many people buy it as an investment. I am well aware that there are other reasons people buy it, and those are explicitly acknowledged in the article. The rest of your questions have already been addressed in both the article and other comments.

Annuity


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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3This feature is accessible through the accelerated death benefit rider on some life insurance policies. Please see riders for terms, conditions and restrictions. Additional costs may apply. Subject to state-specific terms and availability. A disclosure form must be completed prior to receiving benefits under these riders. An administrative expense may be charged if the benefit is used. Receipt of accelerated benefits may be taxable. Tax laws relating to accelerated benefits are complex. Please consult a tax advisor. Receipt of accelerated benefits may also impact eligibility for public assistance programs.
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.
I’m glad those policies worked out for you, and I agree that the simple act of saving money is more important than the specific investments you choose, especially at the beginning. With that said, it’s also a good idea to invest that money as efficiently as possible and I do not think that whole life insurance provides that efficiency for the vast majority of people.
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.
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.
Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insureds directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD.
Add to this, when a younger person owns whole life (or cash value fixed universal life) they have the life insurance coverage they need, are building a tax free bond portfolio for the future (which as most people realize is what older investors shift into as the age) but also have a accumulation vehicle that can “self complete” if they become disabled. 401k’s can’t provide this…they don’t even match the long term return of the do nothing stock markets because of the fee’s they charge. That is to say…there is no “alpha”
If you have a persuasive personality, a strong aptitude for working with numbers and a desire to help others, you might enjoy a career as an insurance salesperson. Your options include a path as an insurance broker or insurance agent. While both occupations involve the sale of insurance policies, there are also some important differences to consider.

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 agree that it isn’t a good investment. However, that doesn’t make whole life a bad insurance policy. As I mentioned before, I realized a lot of things in my years working for a mortuary. First, the vast majority of life insurance policies that we filed were whole life (I would guess 80-90%). Why? Because people who are in their 70’s, 80’s, and 90’s don’t have term policies anymore. And I’ve seen all kinds of things happen to people who have planned well financially. Getting old and having to go into a nursing home generally means depleting one’s assets. With nursing homes in my area costing $5000 per month (and more in some areas), it may not take long to go through someone’s savings. Once they go through all of their assets, Medicaid will pick up the tab for the nursing home bill. Having whole life leaves money at the end regardless of what unforeseen circumstances happen. I’ve seen it happen hundreds of times….I’m guessing that those families didn’t think it was such a bad deal.
This isn’t entirely accurate. Whole life insurance isn’t a product designed to replace term insurance. It wouldn’t make sense to have a retirement account disappear in the event of someone passing early. This would be irresponsible on the part of an agent to suggest this. Whole life has to be used with the intent of using it as collateral for loans, enhanced retirement and for leaving a legacy. In the early years it should be set up with a term rider to ensure a family’s needs will be met. Yes this is more expensive but it is a tool with an objective and if that’s not the objective then whole life makes no sense at all. It is not right for everyone.
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*All discounts are subject to eligibility criteria and applicable rates and rules at the time of purchase. Actual savings vary. Life multi-policy discount is not available in conjunction with auto policies already taking advantage of ERIE Rate Lock®. Erie Family Life insurance products are not available in New York. For additional information, contact your local ERIE agent.

Insurance brokerage is largely associated with general insurance (car, house etc.) rather than life insurance, although some brokers continued to provide investment and life insurance brokerage until the onset of new regulation in 2001. This drove a more transparent regime, based predominantly on upfront negotiation of a fee for the provision of advice and/or services. This saw the splitting of intermediaries into two groups: general insurance intermediaries/brokers and independent financial advisers (IFAs) for life insurance, investments and pensions.
Hi Matt. Read your posts and comments on Whole Life and the overfunding options available. I have a different situation involving a policy with Prudential called Variable Appreciable Life. I am looking for a safe haven for some available cash with a minimum return of 4%. Agent/Financial Planner has suggested I overfund the balance of that VAL policy. Yes, I am quite conservative but have enough invested in 401k, Stocks, Funds etc. Policy is 50K and issued in 1990. Wife and I are in mid seventies and looking to have 30-40K of available liquid cash. Can add/withdraw the overfunding $ at any time. Interest guarantee is 4.0%.
Weiner was talking about rolling returns for Vanguard. So, it’s his argument, not mine. And, this is a different issue from what you’re talking about anyway regarding annual returns based on monthy savings. So I’m not sure where you’re going with this or why you think it’s misleading. I believe Weiner got his figures from Vanguard…so…that would mean Vanguard is misleading itself? Doesn’t make sense man.
The insurance industry in China was nationalized in 1949 and thereafter offered by only a single state-owned company, the People's Insurance Company of China, which was eventually suspended as demand declined in a communist environment. In 1978, market reforms led to an increase in the market and by 1995 a comprehensive Insurance Law of the People's Republic of China[48] was passed, followed in 1998 by the formation of China Insurance Regulatory Commission (CIRC), which has broad regulatory authority over the insurance market of China.[49]
Thanks for reaching out Wanda. The answer really depends on the specifics of your policy, your personal goals, and your overall financial situation. To be completely honest, if you’re already 13 years in and continuing to pay the premiums isn’t too much of a burden, keeping the policy may actually be the best choice going forward. But the only way to know for sure is by doing a detailed review. That is something I could do for you, and if you’re interested you can email me at matt@momanddadmoney.com to get the conversation started.
The first life table was written by Edmund Halley in 1693, but it was only in the 1750s that the necessary mathematical and statistical tools were in place for the development of modern life insurance. James Dodson, a mathematician and actuary, tried to establish a new company aimed at correctly offsetting the risks of long term life assurance policies, after being refused admission to the Amicable Life Assurance Society because of his advanced age. He was unsuccessful in his attempts at procuring a charter from the government.
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Disability- what happens to your retirement plan contributions if you want to work but can’t? Your employer can’t even contribute for you… It’s illegal. Oh, a life insurance company will pay the premium for you along with any additional money that you scheduled to dump in… And continue to contribute forever if your remain disabled (if done right). That is called a “self-completing retirement plan.”
Insurance terms, definitions and explanations are intended for informational purposes only and do not in any way replace or modify the definitions and information contained in individual insurance contracts, policies or declaration pages, which are controlling. Such terms and availability may vary by state and exclusions may apply. Discounts may not be applied to all policy coverages.
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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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!
Property insurance provides protection against risks to property, such as fire, theft or weather damage. This may include specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance, some of which are listed below:
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.
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.
Admitted insurance companies are those in the United States that have been admitted or licensed by the state licensing agency. The insurance they sell is called admitted insurance. Non-admitted companies have not been approved by the state licensing agency, but are allowed to sell insurance under special circumstances when they meet an insurance need that admitted companies cannot or will not meet.[39]
Will you need life insurance when you’re 50-60? I’m assuming that the $13,000 per year you could put into universal life is on top of maxing out a 401(k), IRA and HSA, since those are very likely to be better savings avenues. If so, considering that you’re 22, I would imagine that you will be well on your way to financial independence by 50-60 and will have little, if any, need for life insurance at that point.
We don’t have enough information in these posts to make a recommendation. You should meet with a few advisors and get one you’re on the same page with. If they can’t explain why you “need” whole life (remember, there are other options for permanent insurance, including level-cost T100), dump him…you can do better. You should be requesting a few funding alternatives rather than banking on one strategy with different brokers. You need to really do your homework.

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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?
However, unlike a house, a Whole Life policy is HIGHLY LIQUID (can be converted to cash in a matter of days, irrespective of market conditions) and has Guaranteed Values (once dividends are paid, they are fully vested and added to the Guaranteed Values, it is only future dividends which are not guaranteed). As such, borrowing against a Whole Life policy is much simpler (can be done without an application, credit report, etc.) Additionally, here again it is not an all or none proposition. One can PARTIALLY surrender a Whole Life policy, or just surrender additions (dividends or client paid Paid-up-additions). Try that with a house, try selling just one room or a few bricks. With a house, unless you decide to borrow, converting the asset into cash is an all or none proposition.
The television series Forensic Files has included episodes that feature this scenario. There was also a documented case in 2006, where two elderly women were accused of taking in homeless men and assisting them. As part of their assistance, they took out life insurance for the men. After the contestability period ended on the policies, the women are alleged to have had the men killed via hit-and-run car crashes.[31]
*All discounts are subject to eligibility criteria and applicable rates and rules at the time of purchase. Actual savings vary. Life multi-policy discount is not available in conjunction with auto policies already taking advantage of ERIE Rate Lock®. Erie Family Life insurance products are not available in New York. For additional information, contact your local ERIE agent.
1. Almost ANYONE can benefit from a well designed overfunded Participating Whole Life policy. Are you saying that the vast majority of the population has no place in their investment portfolio for a guaranteed fixed asset that provides long-bond like returns (coupled with a few other bells and whistles)? I would even argue that single people with no children might benefit from this product in the right amount and the proper structure (not to mention that some policies now have the option to pay for long-term-care). EVERY PERSON that cares for someone or something (be it a spouse, a child, a charity, or anything else) can benefit even more, by virtue of having a guaranteed death benefit. Such a benefit allows the comfort (and better cash flow with lower taxation) of spending down assets, rather than relying solely on returns on assets.
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Progressive Home Advantage® policies are placed through Progressive Specialty Insurance Agency, Inc. with affiliated and third-party insurers who are solely responsible for claims, and pay PSIA commission for policies sold. Prices, coverages, privacy policies, and PSIA's commission vary among these insurers. How you buy (phone, online, mobile, or independent agent/broker) determines which insurers are available to you. Click here for a list of the insurers or contact us for more information about PSIA's commission. Discounts not available in all states and situations.
"Flexible death benefit" means the policy owner can choose to decrease the death benefit. The death benefit can also be increased by the policy owner, usually requiring new underwriting. Another feature of flexible death benefit is the ability to choose option A or option B death benefits and to change those options over the course of the life of the insured. Option A is often referred to as a "level death benefit"; death benefits remain level for the life of the insured, and premiums are lower than policies with Option B death benefits, which pay the policy's cash value—i.e., a face amount plus earnings/interest. If the cash value grows over time, the death benefits do too. If the cash value declines, the death benefit also declines. Option B policies normally feature higher premiums than option A policies.
Typically, life insurance is chosen based on the needs and goals of the owner. Term life insurance generally provides protection for a set period of time, while permanent insurance, such as whole and universal life, provides lifetime coverage. It's important to note that death benefits from all types of life insurance are generally income tax-free.1
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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.

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Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment.

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.


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!

We don’t have enough information in these posts to make a recommendation. You should meet with a few advisors and get one you’re on the same page with. If they can’t explain why you “need” whole life (remember, there are other options for permanent insurance, including level-cost T100), dump him…you can do better. You should be requesting a few funding alternatives rather than banking on one strategy with different brokers. You need to really do your homework.
Insurance brokers represent the insurance buyer – you the consumer or business owner.  They are appointed or contracted with multiple insurance companies.  They have the flexibility to discuss many options and companies that meet your needs and budget. Insurance brokers have been around as long as insurance agents.  In many cases people will refer to insurance brokers as independent insurance agents.
Lets also not forget a very important aspect of whole life INSURANCE. It provides guaranteed insurance, for life. Term policies are nice, and serve a purpose, but they eventually end and the cost to continue term as you get older can be way too expensive for most people. Whole Life allows you to lock in a guaranteed premium, that will never increase.

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1) I believe that when done correctly, it is insurance that CANNOT BE TAKEN AWAY. One of the most important things about whole life is that the annual premium is FIXED at a constant level FOREVER and the death benefit cannot be taken away if you continue paying in (these are the basics but I think worth repeating). I bought my policy at age 32. If I get heart disease, diabetes, or any of thousands of exclusionary conditions over the rest of my life, it does not matter. My insurance will not go away. If you rely on term insurance, then even if you get a 20 year policy as a 30 year old, then at age 50 there is a good chance you will either i) have to pay MUCH higher premiums to continue your coverage or ii) not be able to get coverage at all. It is just like health insurance before ACA. If you think you can keep rolling over term life, you are taking a very big gamble. This is probably fine if you are only insuring to protect your family in your early working years. But if you want to make sure your heirs eventually get a benefit on your death, term life is a bad gamble. Which leads into #2…
In any case, once when I was younger, I used to think like the author, that you can overcome your risk tolerance and become a better investor if only you can control yourself and learn to love the equities roller coaster ride…now that I am in my mid-40s, I realize that I’m old school and conservative. I am happy with 5-6% return that is tax free risk free and doesn’t involve me making any decisions except how much I want to save this year.
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.
Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage arising from any cause (including the negligence of the insured) not otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials, fixtures or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from an insured peril.[28]
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.”

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.
Here are a few more important items to keep in mind when dealing with Agents and Health Insurance: * There is no cost to using a Broker or Independent agent. If an agent helps a client purchase a plan with a specific company, the insurance company will pay the agent a small stipend each month in which the health insurance plan is kept in place. * With Affordable Care Act - ACA in effect insurance companies are dropping the multiple network option for more specific smaller networks, or only one network. Agents, whom do their job correctly, will help to make sure that your doctor is in network with the insurance company that you choose. * If you work with a Captive Agent make sure to check other options with non-captive agents so that you have all the information you need to make an informed decision. * Using an Agent as your personal representative should go beyond just purchasing a plan. When you have an issue with if a doctor is on a plan or if your medications are covered you should be able to refer back to your agent for help in getting these issues answered or resolved. A good agent will go above and beyond just "selling" a plan to you. * Agents are aware of the Open Enrollment times in which you can change plans. A good agent will send an email out reminding their clients each year that now is the time to move plans or insurance companies since there is only a small period of time (Open Enrollment in the Fall) in which you may move to a different insurance company each year for a Jan 1st effective date. * Each year when rates increase Brokers and Independent Agents will be able to see all the companies rates and plans for the new year and help you decide if you should move to a new insurance company or plan for the new year *Agents are aware of what a Qualifying Event is and if you can change plans each year, how to do that and what is required. With all the knowledge agents possess...why not take advantage of free!
Industries with a higher percentage of companies that have Beat (Positively Surprised) usually means that something good is happening to that group as a whole for so many companies to be positively surprising. And studies have shown that companies that positively surprise have a greater likelihood of positively surprising in the future (or missing if they've recently missed).
In any case, once when I was younger, I used to think like the author, that you can overcome your risk tolerance and become a better investor if only you can control yourself and learn to love the equities roller coaster ride…now that I am in my mid-40s, I realize that I’m old school and conservative. I am happy with 5-6% return that is tax free risk free and doesn’t involve me making any decisions except how much I want to save this year.

Premiums paid by a policyholder are not deductible from taxable income, although premiums paid via an approved pension fund registered in terms of the Income Tax Act are permitted to be deducted from personal income tax (whether these premiums are nominally being paid by the employer or employee). The benefits arising from life assurance policies are generally not taxable as income to beneficiaries (again in the case of approved benefits, these fall under retirement or withdrawal taxation rules from SARS). Investment return within the policy will be taxed within the life policy and paid by the life assurer depending on the nature of the policyholder (whether natural person, company-owned, untaxed or a retirement fund).

Actually, you can easily “surrender” the money from a whole life contract and not pay tax. Life insurance is treated “First in; First Out” for accounting and tax purposes. You can easily surrender the cash value that is considered growth too. However, if this is done, then the policy owner would be taxed. The “loan” is a way for the insurance company to give your money to you and the income tax free death benefit can pay the “loan” back. Yes, there is interest charged however, most of the time it is the same amount that the policy continues to earn because remember, the money is still in the policy. This is known as a “wash loan”.
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.

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Professional liability insurance, also called professional indemnity insurance (PI), protects insured professionals such as architectural corporations and medical practitioners against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called medical malpractice insurance.
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.
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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4. The guaranteed dividend or return rate was 0.75% and the last time the company had to resort to this rate was in 2008. In 2013 and 2014 the return was 12%. The average return was 8% and the return was capped at 15%. This average return seemed better than whole life policies that I had read about. Your money was invested similar to any other moderate risk investment account and this was different from the conservative approach that I thought most whole life policies took.

The mortality of underwritten persons rises much more quickly than the general population. At the end of 10 years, the mortality of that 25-year-old, non-smoking male is 0.66/1000/year. Consequently, in a group of one thousand 25-year-old males with a $100,000 policy, all of average health, a life insurance company would have to collect approximately $50 a year from each participant to cover the relatively few expected claims. (0.35 to 0.66 expected deaths in each year × $100,000 payout per death = $35 per policy.) Other costs, such as administrative and sales expenses, also need to be considered when setting the premiums. A 10-year policy for a 25-year-old non-smoking male with preferred medical history may get offers as low as $90 per year for a $100,000 policy in the competitive US life insurance market.
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.
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]
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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