Thanks so much for the great article! My husband has a whole life insurance plan that was set up for him by his dad when he was a teenager, so he’s always had it. It’s expensive, though, and we’ve often talked about discontinuing it because it’s so pricey. Still not sure what the best route to take is, but I appreciate the very informative article!


In the United States, insurance brokers are regulated by the individual U.S. states. Most states require anyone who sells, solicits, or negotiates insurance in that state to obtain an insurance broker license, with certain limited exceptions. This includes a business entity, the business entity's officers or directors (the "sublicensees" through whom the business entity operates), and individual employees. In order to obtain a broker's license, a person typically must take pre-licensing courses and pass an examination. An insurance broker also must submit an application (with an application fee) to the state insurance regulator in the state in which the applicant wishes to do business, who will determine whether the insurance broker has met all the state requirements and will typically do a background check to determine whether the applicant is considered trustworthy and competent. A criminal conviction, for example, may result in a state determining that the applicant is untrustworthy or incompetent. Some states also require applicants to submit fingerprints.

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]


In India IRDA is insurance regulatory authority. As per the section 4 of IRDA Act 1999, Insurance Regulatory and Development Authority (IRDA), which was constituted by an act of parliament. National Insurance Academy, Pune is apex insurance capacity builder institute promoted with support from Ministry of Finance and by LIC, Life & General Insurance companies.
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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Second, when it comes to investing, my experience shows that most insurance companies charge MUCH higher fees than are necessary. And since cost is quite possibly the most important factor when it comes to investing, that matters a lot. I would much rather see people using a simple, low-cost index investing strategy that’s both easy to implement and backed by all the best research we have as the most likely route to success.

Mores also gave the name actuary to the chief official—the earliest known reference to the position as a business concern. The first modern actuary was William Morgan, who served from 1775 to 1830. In 1776 the Society carried out the first actuarial valuation of liabilities and subsequently distributed the first reversionary bonus (1781) and interim bonus (1809) among its members.[7] It also used regular valuations to balance competing interests.[7] The Society sought to treat its members equitably and the Directors tried to ensure that policyholders received a fair return on their investments. Premiums were regulated according to age, and anybody could be admitted regardless of their state of health and other circumstances.[9]

Life insurance policies often have hidden costs, such as fees and large commissions, that you may not find out about until after you purchase the policy. There are so many different kinds of life insurance, and so many companies that offer these policies, that you should use a fee-only insurance adviser who, for a fixed fee, will research the various policies available to you and recommend the one that best suits your needs. To ensure objectivity, your adviser should not be affiliated with any particular insurance company and should not receive a commission from any policy.
The first years premiums goes to the insurance agent who sold you the policy…and I’m sure there are plenty of other hidden fees in there. I almost went with whole life insurance as a friend was working as an insurance agent and I had just graduated college. I decided against it though. Read a book that said that I should instead buy term and invest the difference. Another problem with whole life insurance is that the premiums are much more expensive than term life insurance…if someone chooses whole life, they will likely choose a lesser coverage and might be underinsured if something unfortunate were to occurr.

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Let’s consider th facts. Over the last 25 Years , SunLife participating WL Insurance has been consistent around 9.7% interest. That’s compounding annually. 25 year old male , Guaranteed minimum death benefit $150,000 . At age 65 the death benefit will likely be $650,000 , potentially $700,000 and if the market went way downhill and crashed $350,000. Guess how much he paid over the 20 year premium payment period (20pay WL) =$79,980 . That’s a contractually guaranteed – total cost for that $150,000 guarantees death benefit . It’s already much over 100% of his money back. With cash value , with loan ability (tax – free policy loan interest rates are on average in Canada right now 3.5%) . Ok? Making sense at all? Seeing any benefits to this concept anybody? So tell me , an investment of let’s just round up and say $80,000 that a 25 year old male will pay over 20 years. Guarantees him a minimum cash value of $68,900 contractually guarantees minimum. But , with the additional dividends he will actually have something like $129,000 . If he died two months into it the death benefit is $150K . When he turns 65 his investment grew on a tax sheltered basis from $80K to $390K , then if he does die they pay the $150K plus the cash value of $390K all tax free entirely to his family or his estate.
After reading the entire thread, couldn’t help but add my thoughts. I am a civilian here so no affiliation as an insurance salesman or financial planner in any capacity. I am however, an owner of a WL policy (one year in) which I got through a friend in the business. I admittedly jumped into this without doing the proper due diligence as more of a favor to him. I have had anxiety about this decision since, and am days away from my second annual premium payment and have thus spent a great deal of time researching and thinking about the implications of this asset. I am at a “cut my losses and run crossroads”. Is this a quality asset, or do I cut and run and chalk-up the loss as the cost of a lesson learned in letting others do my independent thinking for me (two implications here are that 1) I do believe that the person who sold me this actually believes in the products and 2) that doesn’t mean that he is right and any person, no matter how financially savvy, who is willing to dedicate the time, can do the research and come up with their own view). I say all of this to admit that I am biased, even if only sub-consciously, as I have tried to think in a balanced manner with regards to this decision. All of that being said, I am currently leaning towards keeping the asset in place and welcome thoughts. My current logic below.
Insurance can be a complex concept that is not always easy to understand. While we know that we need insurance to protect our health, our house and car, and to ensure that our loved ones are protected, the finer details often become blurred. An insurance broker can help you navigate the process of finding, comparing, and acquiring insurance by breaking it down into terms and conditions the average Joe can understand. Insurance brokers pride themselves on providing their clients with the best value in insurance coverage. Having an experienced insurance broker represent you is also a wise way to safeguard yourself and your business.
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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In most countries, life and non-life insurers are subject to different regulatory regimes and different tax and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature – coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year.
Mortgage life insurance insures a loan secured by real property and usually features a level premium amount for a declining policy face value because what is insured is the principal and interest outstanding on a mortgage that is constantly being reduced by mortgage payments. The face amount of the policy is always the amount of the principal and interest outstanding that are paid should the applicant die before the final installment is paid.
First, there are your regular whole life policies that are non-{articipating and then there are those that are Participating. Participating policices earn dividends which is called a “return of premium” however with that dividend it purchases more insurance and the coverage keeps going on as long as a dividend is paid, the more coverage the more dividend, the more dividend the more coverage etc. After 25-30 years a person can stop paying for the policy and take reduced paid up insurance and keep the insurance enforced for the rest of their lives without paying a single cent. This is one of the features I absolutely love about participating whole life.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks.[3] These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance.
The best part of the cash value? You have access to it at any time, for any reason, without taxes or penalties. This is probably the best benefit of whole life and is what is most attractive to my high net clients who are already maximizing contributions to IRA’s, 401k’s etc. Also, whole life does not carry the same penalties for withdrawals as these other accounts do
My advice: Load up on Term, especially when you are young and healthy, but make sure it is renewable and convertible. As well, buy some permanent coverage to at least pay for final expenses. When you buy term insurance the premiums are gone forever. Unless you die no one benefits. At least with whole life insurance someone will get back all, and in most cases more, than you ever put in. The most important question to be answered when getting insurance is, how much do you need? Typically, you will need 5 – 10 times your income plus debt coverage, if you have someone financially dependent upon you.
It’s a great point about the cost causing people to be underinsured. I have no idea if there are any statistics on that, but intuitively it would seem to make sense. It’s a shame if someone with a real need for life insurance is under-protected because a salesman could make a bigger commission off the more expensive product. But I’m sure it happens.

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I’ve found from my experience, people either plan, save and invest or they don’t. Those that procrastinate and nitpick over which investment may be better than another are wasting valuable time and usually aren’t that successful. If someone starts saving and investing EARLY and accumulates a diversified retirement portfolio they will never look back and wish they had done differently.

They cannot provide you with any final answers. Calculators only allow you to perform "hypotheticals," recalculating and generating new results as you make and input new assumptions. Using these tools and educating yourself on the workings of life insurance and other financial products, however, can help you feel more comfortable when discussing your needs with professionals like a New York Life agent.
Burial insurance is a very old type of life insurance which is paid out upon death to cover final expenses, such as the cost of a funeral. The Greeks and Romans introduced burial insurance c. 600 CE when they organized guilds called "benevolent societies" which cared for the surviving families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose, as did friendly societies during Victorian times.
Safe Auto Group Agency, Inc and/or its affiliates (“Safe Auto”) is located and operated exclusively in the United States of America. Safe Auto does not offer goods and/or services in any language of an European county, does not deal in any European currencies, and does not underwrite risks for or issue policies to individuals or companies located in the European Union.

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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A broker can also give you the satisfaction knowing that you are adequately insured against all potential liabilities. Whether you are concerned about your company being sued for selling a defective product or about what would happen if you had a fire at your house, an insurance broker can address each of these issues and can build a comprehensive insurance plan to make sure that each and every one of your liabilities concerns is addressed.
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.
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Most of the time people selling against whole life state ” the guaranteed portions never materialize so assume no dividends are paid and let’s assumes you’ll get a 9 percent return in a mutual fund had you invested the difference”. This reasoning is total BS , all major mutuals have paid dividends over the last 150 + years and if you are in a mutual fund getting a higher return than 6 percent it is incredibly high risk and unrealistic long term. Also whole life tends to do much better in market downturns. they also make their money on forfeited policies, loans and pool payouts so their returns are not “totally” tied to the market performance.
4. If the monthly premium is within your budget and and individual has saved money into other forms of retirement savings. Then why not get the benefit of having the safety net that the whole life insurance gives you then Surrendering that policy when you no longer need it and receiving (what I believe to be tax free) money for having that safety net in place
The benefit to you is enormous. Boomer Benefits provides back-end policy support that you cannot get directly from an insurance company and that none of our competitors offer: a dedicated Client Service Team for our existing policyholders only with 10 full-time employees on call to immediately fix very common Medicare hiccups which are otherwise stressful for you.
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.

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]


Because brokers work with a variety of insurance companies, they tend to have a broader understanding of companies’ offerings and key benefits. They are commission-based, which is a double-edged sword: they may be more motivated to earn your business year after year by getting you the best deal possible; or they may try to sell you a policy with unnecessary bells and whistles since that would pay them a higher commission. Regarding the double-edged sword: the best way to nail down the best deal possible is the annual review and re-shopping of coverage. The best way to avoid unnecessary “bells and whistles” is to remember that your needs guide what you purchase. If you don’t need “bells and whistles”, don’t purchase them. Approaching insurance this way is always the best way forward. Consider this: having options placed in front of you and explained in detail allows you the opportunity to hear about the newest “bells and whistles,” some of which may be just what you need or were looking for, but simply never asked about. Policies change, and new options are added by carriers all the time.


Thanks for reaching out Kendra. To be quite honest this is a complicated question without a simple answer. It depends very much on your father’s need for life insurance, his current health status, and the specifics of this policy. It may very well be that the policy you have is your best option going forward. Or it may be that there’s a better one. But it’s impossible to know without a more thorough evaluation.
I have a few whole life policies. I was older when I really started to save and have the ability to pay into these accounts now (one I paid $95,000 right at start) and started late on a 401K. I max out my 401K contributions every year (I’m in the 50+ catch up department) so I believe the thinking was that these policies were the best option given my late start. Is that true? It seems your article is geared toward the young investor.
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.
With whole life insurance, you can’t just decide to stop paying premiums. Well, you can, but if you do then the policy lapses and you’re forced to withdraw the cash value, which will subject you to taxes and possibly a surrender charge. And if you haven’t had the policy in place for multiple decades, you will also be left with meager, and possibly negative, returns.
Often a commercial insured's liability insurance program consists of several layers. The first layer of insurance generally consists of primary insurance, which provides first dollar indemnity for judgments and settlements up to the limits of liability of the primary policy. Generally, primary insurance is subject to a deductible and obligates the insured to defend the insured against lawsuits, which is normally accomplished by assigning counsel to defend the insured. In many instances, a commercial insured may elect to self-insure. Above the primary insurance or self-insured retention, the insured may have one or more layers of excess insurance to provide coverage additional limits of indemnity protection. There are a variety of types of excess insurance, including "stand-alone" excess policies (policies that contain their own terms, conditions, and exclusions), "follow form" excess insurance (policies that follow the terms of the underlying policy except as specifically provided), and "umbrella" insurance policies (excess insurance that in some circumstances could provide coverage that is broader than the underlying insurance).[32]
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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.
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I certainly don’t think that an insurance policy has to pay out to be valuable and that isn’t necessarily what I meant. We have term insurance now and I certainly find value in it even though it (hopefully) will never pay. What I meant was that the value to other family members is immeasurable. I can’t tell you how many times that I’ve seen a whole life policy swoop in and save the day when family members were struggling to cover the cost of a $10,000 or more funeral. I’ve just seen it happen too many times. Nobody thinks their 90 year old mom whose been in a nursing home for ten years would have life insurance and trust me when I say that people are pleasantly surprised when they find out that that’s the case.
Backdoor Roths – 1) These vehicles are still capped at $5,500 on an annual basis (LI has no restrictions on contribution amounts.) 2) Roth IRAs are still exposed to market risk and can experience losses in account value (whole life policies are not and cannot). 3) Doing a backdoor conversion year after year is an administrative pain in the ass and will have tax implications if you hold a traditional IRA.
2) With a portfolio of risky assets, the LONG-TERM RETURN is expected to be higher, but the variability around that is MUCH higher. In pretty much all of the “expected return” analyses that people on the internet show to compare whole life to term life + investing the difference, they are just comparing annualized returns or an IRR on a zero-volatility return stream. What they don’t account for are situations where the market crashes and you panic, wanting to move money into cash, or having to draw down on assets because they’re liquid and you can. This is normal behavioral stuff that occurs all the time, and reduces the power of your compounding. If you and your adviser are sure you can avoid these common pitfalls, then that is great and you might want to go for it. But don’t dismiss the reality. Also when running your simulations, make SURE to tax all of your realized capital gains and interest income along the way, and unrealized cap gains at the end. It can make a big difference.
Hi Christine. First of all, thank your for stopping by. Second of all, please don’t beat yourself up over this. Life insurance salesmen are trained to make these policies sound REALLY attractive and their arguments can be quite persuasive. I actually found myself feeling close to convinced about one of these policies a few years ago before coming to my senses.

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