1. Life insurance is only for people who have families. For singles who don’t intend to ever get married and have no dependents it’s a complete waste of money.

    • I am a life insurance agent sir. It does help for people who do not have the opportunity to save their money. For example, a family of 6 where both parents work two jobs and still cannot afford a simple lifestyle cannot set aside this money if they want their family to enjoy life. It helps people who might develop some sickness later down the line and they have to use all of their saved money to pay doctor bills. Life insurance helps for those instances where a person does not know what will happen in the future; and no matter how much planning you do, you are not God and do not know what will happen. Just saying.

      • ShanaSanders I stand by my opinion that it is of no use to single people who have no dependents and have no intention of getting married.

      • berneigh andru08 As I stated in the article, I want the comments civil and respectful. Life insurance posts have a history on the internet of getting out of hand in the comment section so I’m requesting all comments are an attempt to add value with additional opinions and facts without being derogatory or abusive. Thank you.

        • Todd,
          I was not being abusive nor was I being derogatory. I was merely stating an opinion and a fact that applies to me and I think may apply to other singles with no dependents who have thought things through. It does not make any financial sense to stash money away for the care of dependents if there are no dependents to take care of after one’s demise. It makes much much better sense to invest it for early retirement.
          I have never had nor will I ever purchase life insurance. I have given much thought to it and don’t see any financial value to do so. It is also true that I have already made all the necessary arrangements of donating my remains to science when I meet my demise.
          If anyone was being disrespectful, I feel it was @berneigh. If my methods and decisions do not match up with the general populace there is no need to bring my parents into it. That was terribly impolite.

  2. Todd,
    I think your analysis is spot on, and that’s coming from a life insurance agent.  Agents try to improve these policies by structuring them differently, adding riders, directing more money to Paid-up Additions, but ultimately that only makes them incrementally better, like putting lipstick on a pig.  All whole life policies end up having the liquidity concerns and forced contribution arguments you outlined.  Well done!

  3. Thanks, Todd, “I wish I’d read this years ago!”
    When I took over my Dad’s finances in 2011, his files included a three-inch stack of 45 years of correspondence with the whole-life insurance company.
    They were constantly bickering over the loan amount, the interest, the fees, and the cash value. Dad reached financial independence in the 1980s and no longer needed the policy, and neither did us beneficiaries. 
    I wish he’d been foresighted enough to cash out and spend it on himself, or at least invest it to pay his long-term care expenses. 
    Instead in 2010 he did exactly what you suggest: he converted to a guaranteed universal life policy. Which he also does not need.
    You’ve saved me a lot of time drafting a chapter about whole life in my book to help military families make good decisions on insurance policies… now I’m just going to link to this post.

    • The Military Guide Thanks Doug! Sorry to hear about your Dad’s trials and tribulations with the insurance company. That’s one of the challenges in having little more than a contractual obligation where the other party holds all the cards. Yes, it is a legally binding contract that they can be held to, but there’s a lot of interpretation of language and calculations where they have the upper hand. Life is short and sometimes the battle to justice just isn’t worth it.

  4. InvestorJunkie Whole life insurance is the next best investment to time shares. Total Waste.

  5. Outstanding summary Todd. The complexity and incentives almost guarantee most of these products will be sold inappropriately.

    • HapyPhilosopher Yeah, the complexity is mind-boggling. I’m always amazed how someone will do a simplistic analysis to compare cash value growth against competing investment alternatives as if that’s all there is to it. No discussion about what happens when you actually use that cash value and how it impacts the policy and what rules are associated.

      • Financialmentor Yes. I  have tried to talk several people out of various of these complex products after talking to a friend of mine who is a financial advisor. He has many horror stories about these instruments collapsing on people not being careful with them in retirement and having massive tax liability at exactly the worst time.

  6. Interesting post, a bit long winded, but info I wish I had in ’07. One piece missing, that I found, was what do I do now? Not sure how many of your clients are/were in the same boat as me, but I was pretty sure you may have remembered our conversations and they influenced this post.
    So the question is, what does an individual do with ~$300k in cash value? As you mentioned, 63.7% of us have some variation of this issue: we have cash tied up in whole life making some form of “guaranteed” dividend, but as you identified, it’s not easy to liquidate or use that money.
    We spent a lot of time talking about why I won’t create wealth in my insurance during our discussions, but missed the point that I’m already there. I have to continue making the premium payments, regardless of size, or it comes back to bite me. I have taken loans to buy rentals and use the difference in my returns to pay back the loans, but that’s really the only thing I can see that makes sense to do with the cash value. Even at that, I’ll have to work hard to pay down the loans, unless I buy, hold, then flip the properties, which again, puts the cash back into a policy that makes it hard for me to access, unless I’m happy with the 6.25% return and want to take that as distribution.
    Granted, the article is written to educate future buyers of insurance, but can you comment toward those of us that did use this strategy and “fell for the pitch”? You mention cashing in the policy and buying term or universal life, but at my tax rate, that would be upwards of $90-100k lost in taxes. Is this the best option to “cut bait”?

    • LukeGrogan I was thinking the same things when I read it…If I and my wife are 10 years into a 20-year paid up Whole Life situation, what are we to do now?  Cashing out is an option but feels a little silly.  We have Term a well, but maybe not quite enough…

      i would be interested to see how FinancialMentor thinks those of us in the middle should respond?  Thanks for sharing.

      • AJMcFarland LukeGrogan There’s two challenges to answering (both of) your questions…

        The first challenge is every policy and individual situation is unique. I can explain the issues with whole life insurance in a generic and educational way, but specific recommendations would be impossible because the form of communication must be 1-on-1 to properly assess the situation. Anything less would be a disservice to you.

        BTW, it would also be illegal because that’s the domain of licensed financial advisors and insurance representatives – to give personalized financial advice.

        However, the easy solution is to contact the guys referenced in the article for a free quote and consultation at  There are only 4 guys there and that’s all they do is answer the exact questions you’re asking. They charge nothing for the service and the feedback I’ve gotten is they’re super helpful. Also, because they’re independent they can represent whatever is best for you. They’re not beholden to one companies products.

        Give ’em a try and report back how it goes. Let us know…

        Hope that helps!

        • Financialmentor AJMcFarland LukeGrogan I’ll give it a shot – thanks.

  7. Thanks Paul Hoke for the kind words and generous share. Glad the education is helpful.

  8. Thanks for this detailed article. Its hard to find clear analysis of life insurance products. Do you have a perspective on using Whole Life with a Long Term Care rider? this is something i have been thinking about – viewing whole life as a proxy for some of a bond portfolio and using the LTC rider as a better option than the direct LTC insurance market.

    • BritEagle There are too many nuances and details to each policy and how those policies match up to each person’s situation to do questions like this justice in a comment. However, there are 4 guys at my affiliated resource – – and that’s all they do. Their entire work is analyzing policies and matching individual needs to appropriate company policies. They’ll crunch the numbers with you, and they won’t charge you for the service so you have nothing to lose by taking your question to them…

      Hope that helps!

  9. I only read the beginning of your article, once I realize you don’t
    understand how taxation of cash value life insurance, I stopped reading,
    I have other emails to read.
    If you invest in a company(mutual
    fund or whatever vehicle you are using) you will always pay taxes on
    earnings unless you are in a roth account. You can access the money tax
    free only if you margin the account, that is definitely not cost free
    and it can be risky.
    If you invest in commercial real estate, you
    buy a property for 100,000 if it is worth 1 million in 40 years, you
    can go take a mortgage for 800,000k, assuming the rental income can
    cover the payments.  You will not pay taxes even though you put in 100k
    and took out 800k. Try doing that in the stock market, you will get hit
    taxes. Why do we allow this. Because thats how the tax code is written.
    If you sell the property, you pay capital gains, if you borrow against
    it, NO TAXES.
    Life Insurance taxation is very similar to taxation
    of real estate. in the example above. You invest money in life
    insurance, it grows tax free, you take out a loan, you pay no taxes even
    though you put in more then what you put in originally. The reason it
    is a good idea has nothing to with your win loss analysis about the
    insurance industry.
    Now there are obviously risk characteristics
    of whole life that are different than commercial real estate. The rate
    of return on commercial real estate would be higher on average than a
    whole life plan that primarily invests in government bonds. However,
    there is no guaranteed rate of return in commercial real estate. You can
    pick a lemon property and loose everything. You may not be able to get a
    mortgage in 40 years if your tenants don’t pay rent, you have lousy
    credit or other financial circumstances.
    Credit check on whole
    life loan, NO. Any limits because you have a outstanding loan somewhere
    else NO. Any issues if you have bad credit NO. Any margin calls ever NO.
    Any taxes on a loan you take out from Most likely NO. As an investment
    is it inflation proof. Probably not, you are investing in governments
    bonds, In the long run you should come even.
    So smart tax savy
    people would probably do both strategies. They understand the tax code
    and use it to their advantage. This is pretty much how Donald Trump has 4
    billion or 8 billion now. He has lots of real estate under debt and
    lots of life insurance. If your analysis had any merit, Do you really
    think Donald Trump or Warren Buffet would invest in such a lousy product
    if your analysis was correct.

    • tunctanin Hmmm… so you didn’t have time to read the article, but you did have time to write an article length rebuttal selling insurance. Okay.
      Had you bothered to read the article you’d see that I clearly include the
      tax free and hassle free loan benefits you’re mentioning. With that said, I also point out that those same benefits are not without risk (something you failed to do).
      You can always borrow from the policy,
      but you’ll be charged interest on the loans.  In addition, some companies
      pay interest (but not dividends) on the collateralized portion of your cash
      value.  Ultimately if your cash value is not earning enough dividends and
      interest to pay your loan interest and premiums, and you fall on hard times and
      can’t afford to pay it out of pocket, you are at risk of your loan balance
      accruing to the point where it lapses the policy.  
      Again, for ultra
      wealthy individuals, premiums may never be a concern, and I understand they may
      just want to get the easy access, low (net) interest loans, but even to get to
      that point, they have to pay into the policy for years.  Creating your own “bank”
      does not come cheap. There is no free ride. Insurance companies aren’t dumb.

      It should be self-evident to anyone reading your rebuttal that people at the wealth level of a Trump or Buffett that you use as an example to pitch the product would have zero value on your “NO” list of benefits – margin calls, credit checks, outstanding loans, bad credit issues, etc. All ZERO value to someone in that situation. The person who would benefit from your “NO” list is the same person most likely to run into problems with a policy lapse.

      This is very typical of the way these types of products are sold. The arguments are compartmentalized and it takes an expert to separate out the parts. Unfortunately, (or fortunately for the salesman) most consumers aren’t experts and fall prey to arguments like you’re making.

  10. What about bank on your self life insurance and other programs like this? What is your opinion about these?

  11. I need your help…purchased WL with Mass Mutual…Paying 500 a month for the next 10 years. 3 years into it though…want to stop. Just checked cash value and is at a 12,000. which I can take out as loan..Don’t want to. If I surrendered now, would you happen to know the consequences or the fees? I am obviously going to lose a chunk of money, but I do not want to continue loosing more in the long run…Should I surrender for cash now and take loss or should I continue paying?? Please help me. Thanks

    • Yes, look at the sidebar for the life insurance quote form. In the fine print underneath the “display quotes” or “view quotes now” button you’ll see a phone number. Just call that number and let the person know you came from my site so he knows you’re an educated consumer (they know these articles and what the message is). These guys do nothing but life insurance all day, every day so the person answering can walk through the numbers with you to decide what your best plan of action is. Each case will be different because different policies have different terms, rules, etc.. In addition, the decision will require an understanding of your real life insurance needs (not fabricated needs from a salesman) in the context of your overall financial picture to determine the best course of action. It’s not something that can be answered in a comment because the smart next step will vary based on your personal details and the policy details. But again, these guys are experts at this stuff and can walk you through every step of the decision so you know all the trade-offs and implications. Just call the number. Hope that helps!

  12. Todd,

    Your Insurance Posts have been fantastic. I wish I had seen them 10 years ago, when I was buying more life insurance after my autistic son was diagnosed. I knew I needed to have money left over for him…I did a bunch of research, and settled on 750K of term insurance, and 250K of whole life, because I was torn with wanting to make sure I had at least something left for him. I love your simple message (and true one) of separating the insurance need from the investing need. I should have purchased 1M of term and been done with it. This purchase was complicated with my brother in law being a Nationwide agent….his family’s firm had a life insurance specialist I dealt with… I tried to cancel the Whole Life policy 2 years ago..I ran numbers showing I would break even with any loss in 10 years or so….with better returns than I would get with their numbers. I had 3 people come talk to me to obfuscate why I needed to keep it. I was causing problems within my brother in law’s firm (with my Brother in law being pressured by HIS brother to keep my policy.. I decided to take a bullet for the family peace…..kept the stupid thing. Regardless, suffice to say, I hate the Whole Life industry.

    • Sorry to hear about your experience. Thank you for sharing so other readers can learn vicariously and benefit.

  13. what do people think about institutional whole life policy made available to high earning employees after maxing out 401k?

    costs seem much lower then private policy and math seems better.

  14. The point this artical makes is the average person is better off investing their money on their own and not be covered by life insurance. First 95% of the average person loses more then 50% of the money they invest. One comment asks what does he do with over $300,000 he’s built in his life insurance polocy. What a terrible problem. I sell life insurance. If any5hing happens to your family as in lose your husband and mow you cant pay the mortgage, car paymemt, funeral expense. It’s a real diservice to say people don’t need anything without knowing their individual needs. I put together plans for young families which will net them over $1,000,000 in forty years. Oh I know they hate the work of figuring out how to deal with all this money. Better yet if they ever need a large amoint of money for any reason during their life they don’t need to crawl to large banks. Hope their approved or paying off high interest rates. Last, One yiung family that I talked to didn’t see a need because the husband was a big deal lawyer making $400,000+ a year. Three years later I received a call from hos wife wanting to open polocies for her and her husband. He failed his medical check. Whoch is whu they wanted insurance. They hoped they could sneak him through because they didnt expect his cancer would be found. Last year he died. Leaving seven children and his wife who had no job. She had to sell the house and move the kids away from their friends and schools. If your not an agent don’t talk about what one person needs. Your type is what stopped this family from protecting themselves. What will you do for them now? Life insurance saves familes way of life, can be used as retirement supplement, and actually saves lives of it’s own policy holders. Stupid long negative artical from someone who doesn’t understand what effects it might have on individual people.

    • This is typical salesman speak so read it carefully. That way you’re ready when the life insurance salesman pulls these sales tactics on you. Notice the careless use of data and allegations. Notice how he doesn’t actually address any of the key points made in the article. Instead, notice how the arguments take an emotional tone including telling stories of special case situations where whole life proved beneficial. As stated in the article, yes, there will be special exceptions where whole life works out well. His comments change absolutely nothing as explained in this article.

  15. WTH? Anyone buying life insurance online is a fool. When you sit with an agent they should first run through a financial analysis. Making sure you max your 401k, view your investments along with any income yearly of both parents. Then do a debit analysis. Then the two of you have the begining of a plan of savings, investing, insurance and retirement. Note I did not include Socal security. Its not a definite it will be there when you retire. If it is well the more money you’ll have. A complete financial plan not a salesmen from a hack insurance company. It’s your entire life, so take time and sit with a top insurance company agent who holds his series 7, 66 life & health licenses. He should also be in touch with you once a year to check on how things are going and if you have any changes. A birth of a child? A new job, a job promotion, loss of job. It’s all important. Our life insurance will even pay the premiums untill to return to work if your injured or you lose your job. 98% of the wealthy have life insurance. Ask your self why. Sittimg.withva qualified agent and working on a plan will cost you zero! So when your ready to move foward you have it in hand. You can also take it to your accountant, lawyer, Dad, who ever.

    • I approved this comment to allow all voices be heard in the discussion. It should be obvious to all readers that this is the viewpoint of someone with a vested interest so take it with a grain of salt. For example, show me the research proving 98% of the wealthy (term is undefined – what exactly is “wealthy”) have life insurance. Is it independent research or biased by funding from life insurance interests? What type of life insurance (whole life, term, ??) How are they using it vs. how is it commonly sold? Always analyze salesman-speak carefully. See connected comment in this thread from same author where he states he sells life insurance, makes many more unsupported assertions amidst careless spelling and logic errors. After reading his two comments, does that inspire confidence to buy whole life insurance?

  16. Very grateful to have come across this article. I’ve been researching the topics of insurance-based banking for weeks, and this article helps me make up the decision that I’m not at a point where I can take advantage of these types of life insurance at this point.

    For this particular article, I went through it twice and have to say that this is probably one of the most authoritative and unbiased review about whole life insurance out there on the web. I’ve spent weeks studying on the sophisticated use of whole life for business and wealth-oriented individuals, and since I’m not at a point where I can use it advantageously myself, I thought that I would leave my bullet-point note on this topic so that it doesn’t go to waste. Hopefully some other financially-sophisticated people can take advantage of it and put it into good use:

    – Whole life insurance can be useful for:
    – Passing down inheritance tax-free via death benefit
    – Investment loans against cash value at competitive rate
    – Asset protection against litigations and creditors

    – Ideal qualities in whole life to look for:
    – Policy offered by mutual companies
    – Policy with consistently-high dividend yield
    – Maximally-funded policy (maximal amount of premium into cash value)
    – Minimal fees
    – Minimal death benefit

    From what I have gathered, while whole life fundamentally imposes many limitations on the case value, some sophisticated investors do regard those as merely the rules of the game so that they can take advantage of the money transfer and the velocity of money. While it might be unthinkable for a regular individual, some major companies do purchase whole life for their employees with the company themselves being the beneficiaries, so that when employees die, the companies get the money. Basically the other side of the coin so to speak.


  17. First I would like to say this was a great article and I will definitely be checking out other content on your site.

    I am evaluating a Whole Life policy and still feel like I am missing something with the evaluation. Every article that I have seen compares the premiums based against the CSV to arrive at the rate of return, but this is what confuses me. Doesn’t the premium get applied to both the Death Benefit and CSV? Therefore, shouldn’t you combine the Death Benefit and CSV in the calculation? Granted that one portion is illiquid and the other is “somewhat” liquid.

    I am 35 years old. The policy that I was presented is a $3,476 annual premium for 29 years on a $180,000 policy. At year 30, the Guaranteed CSV is $100,000. Per my calculations that gets me to about a 6.2% guaranteed rate of return which seems decent. Taking the life insurance policies current table assuming crediting non-guaranteed dividends, I get to around a 9% return. And this is where I find myself confused on all sides. On hand I have the insurance company telling me that I could receive 9% return on a relatively safe investment, which makes me feel like I am either evaluating it wrong or they are lying to me (or both). On the other hand articles that I have read don’t seem to accurately evaluate the return because they completely ignore the future benefit of the death benefit.

    I would also like to mention, that I see the whole life policy primarily for estate planning with a small benefit (the CSV) for extreme emergencies or use during downturns in equity/fixed income securities. However, I don’t consider myself wealthy.

  18. As a business owner (not wealthy), whole life is useful as a way to protect my retirement from lawsuits. As liability has no effective limits, business insurance can only do so much. Yes it is expensive, but it is the only non-government way to protect assets. (Legally and ethically, without going offshore)

    • Not true. I understand the life insurance salesman’s pitch on this, but there are many other ways to protect assets from lawsuit. While I can’t give legal advice (please consult your attorney), ERISA laws provide some protection for “plan assets” and assets held within entities can provide lawsuit protection as well. Additionally, you could contain your business risk within an entity rather than operating individually which can further reduce the risk of lawsuit to your assets. In short, there are many “non-government” ways to protect assets (legally and ethically, without going offshore) besides whole life insurance.

  19. Excellent article regarding investments

    • Interesting comment considering one of the main tenets of the article was to not buy Whole Life Insurance as an investment. But thank you anyway…


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