A Conversation About Investing in Whole Life Insurance

By Dr. Jim Dahle, WCI Founder

Have I got an investment for you! This investment comes with a 50% front load, meaning that right after you give me the money to invest, half of it will disappear. I will eventually pocket something between 50%-110% of the amount you put into the investment in the first year.

It's going to take the investment at least 5-15 years just to grow back to the original amount you invested. On a nominal basis. Longer, maybe never, on an inflation-adjusted basis.

Your long-term returns on this investment are likely to be in the 3%-5% range (nominal), even if you hold it for five or more decades. Less than that if you hold it for fewer than 2-3 decades. Your return will be even worse if you bail out of the investment before you die. The only way to improve the return on your investment is to die young.

You will be required to prove you have excellent health to purchase this investment. If you have less than perfect health, you will achieve even lower returns or not be allowed to “invest” at all. Likewise, if you have any interesting hobbies like scuba diving, climbing, flying, or sky diving, you will achieve dramatically lower returns or not be allowed to “invest” at all.

Most of those selling this investment agree that most versions of this investment are terrible, just not the particular flavor they are selling. They will insist it is “not an investment” even after they spend hours trying to convince you to use 25%-100% of your investment dollars to purchase it.

The investment may have a surrender penalty that lasts for years. You will be required to make regular “contributions” to this investment. Usually for decades. If you do not, the specified annual contribution amount will be taken from the amount you have already invested.

This investment will be difficult to rebalance with your other investments. In fact, if you ever take the money out of the investment, you will face some serious consequences after a while. Initially, it seems great. You can take out an amount equal to your total investment without paying any taxes. After that, however, you will face an unsavory choice. You can either pay ordinary income tax rates on every dollar withdrawn, or you can borrow against the investment at moderate to high interest rates. Yes, that's right. You have to pay interest to get access to your own money.

The investment will be backed only by the guarantees of a single company and perhaps in a limited way (up to $300,000-$500,000) by a consortium of similar companies.

The investment will pay “tax-free dividends,” but like a Ponzi scheme, the dividends are really just a return of your initial investment. In essence, the “investing company” is saying you “overpaid” for the investment.

More information here:

Is Whole Life Insurance a Scam?

10 Reasons People Regret Buying Whole Life Insurance

Closing the Deal

Want to invest? No? Why not? I haven't even gotten to tell you about all the wonderful side benefits of this investment and all of the things you can do with it. You just don't care after learning all of that? Hmmm . . . maybe the next time I try to sell it to someone, I shouldn't mention any of that and I should just mention the benefits.

I mean, there are benefits. It comes with a lifelong death benefit. So, if you die young, your heirs will get many times what you invested. Sure, they could get dramatically more if they used the same amount of money to just buy a boring term life insurance policy instead, but what's the fun in that?

Did I mention it grows in a tax-protected way? Since those dividends are really just a return of your investment dollars, they're not taxed. And you can take your principal out first. Heck, you could take everything out tax-free for the first decade or so, since there won't be any gains at all.

This money might get some asset protection in your state in the incredibly unlikely event that you have an above policy limits judgment that is not reduced on appeal and you choose to declare bankruptcy.

Don't want to commit to investing in this every year for the rest of your career (or even your life)? Well, maybe we can set it up so you only have to pay for 7-10 years. Would you buy it then?

Maybe it can make your portfolio or retirement “more efficient.” It really depends on who you ask. Unfortunately, everyone who claims it does has a major conflict of interest with the industry selling the investment so it is difficult to discern the truth.

Hate banks? I bet we could rig up a policy that you could use instead of a bank savings account. Done correctly, you'll be exchanging lousy returns in the short run for a little bit higher returns in the long run. Of course, it usually isn't done correctly.

You could borrow against this investment to send your kid to college, invest in real estate, buy a car, or even pay for retirement. Sure, there are better ways to do all of those things individually, but you can't do all of them with the same financial product except this one. It's like a Swiss army knife of financial products, and I'll keep pulling out a new tool every time you object to the last one.

The return on this investment is guaranteed! Sure, the guaranteed returns are absolutely terrible and well below historical inflation, but at least there is a guarantee. I bet your mutual funds can't do that!

Not interested? Come on! Have some mercy. My kids are starving. How am I ever going to get a fancy new car or send those kids to college? Please, please buy what I'm selling. I'm desperate. In fact, I'm so desperate that I'm not even going to mention the negatives to the next person I try to sell this to. I'm not legally required to, and every time they bring them up, I'm going to argue with them endlessly until they just give up and buy it. I'll even call myself a financial advisor and they may not even recognize that I'm really selling to them. I might even change the name of this investment so the purchaser won't realize what they're buying—at least until they've invested so much time and effort into the process and relationship that they feel bad backing out.

Does any of this sound familiar to you? I bet it does. Look, if you want to buy whole life insurance, knock yourself out. I really don't care. But make sure you understand what you're buying BEFORE you buy it and make sure you really do want that. Seventy-five percent of white coat investors who have purchased whole life insurance regret the decision. Per LIMRA, 80% of purchasers of whole life insurance surrender it prior to death.

There are few legitimate investments out there with dissatisfaction rates like that.

What do you think? Are you sick of the way whole life insurance is sold too? Comment below!

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