Really? 35 years later and this is still going on?
I began my financial services career in the life insurance industry in 1981 working for a small, independent insurance agency that was on a mission to educate the public about the evils of whole life insurance.
I’m happy to say I didn’t remain in the life insurance industry for very long but went on to become a Certified Financial Planner(R) professional because I found the entire insurance industry repulsive.
Back in 1981 the insurance industry was the largest lobbying industry in the nation. In 2015, according to the Center for Responsive Politics, they were #2, right behind the Pharmaceutical/Health Products industry, spending over $152 million lobbying our politicians in 2015 alone. (The Pharmaceutical/Health Products industry spent over $230 million in 2015.)
The job of a lobbyist is to convince our politicians to pass laws that are favorable to their industry. The insurance industry lobbyists must be doing a pretty good job because the same whole life policies sold in 1981 that are highly profitable to the companies that sell them are still being sold today like they were the best thing since sliced bread.
Well I’m here to tell you the truth — they are NOT the best thing since sliced bread unless you are the company selling them.
A whole life policy is comprised of two parts, a death benefit and a savings account, but you never get both.
Whole life policies are often sold as good savings programs that can have guaranteed minimum savings rates, however, when you die the insurance company only pays out the death benefit and they keep the savings account.
They also tell you that as long as you live you can borrow your savings at a favorable loan rate, but you are borrowing YOUR OWN money.
Imagine saving $10,000 in a savings account and then when you need it you have to borrow it and pay interest on it. Would you ever do that? Of course not. You’d simply withdraw it.
And if that’s not bad enough, if you die with a loan in place on a whole life policy the insurance company subtracts the loan from the death benefit they pay out.
The insurance company always wins with these policies.
No wonder they are one of the largest lobbying industries in the nation.
So what’s the better alternative?
For almost everyone it’s term insurance. Pure death insurance although you wouldn’t call it that. Who would buy it?
Term insurance is inexpensive life insurance that is sold for a term of years, i.e. 10 years, 20 years, 30 years, and is only a death benefit — no savings account.
Do your savings elsewhere, like in your 401k, or an investment account, or your piggy bank. All are a better way to go. (OK – you can do better than your piggy bank but you get the idea.)
Life insurance policies, like many other financial products, (annuities, another insurance industry product, for example) are sold by highly trained salespeople who are not held to a legal standard of putting your interests before theirs. This is a problem in the financial services industry that many of us are pushing to get corrected.
In the mean time, it’s buyer beware.
But the good news is that you don’t have to fall prey to sales tactics. If you don’t understand it, don’t buy it. And if your intuition is telling you that something just seems off, or you’re feeling pressured to buy, run for the hills.
And, if you already own a whole life policy, don’t feel bad. Most of us have purchased one at some time or another, and unfortunately most people are still being sold them today. Talk to an independent Certified Financial Planner® professional that doesn’t sell products on commission about your options. You will want to find someone whose compensation comes from fees as these professionals are what’s know as a Fiduciary. This means they are legally bound to put your interests before theirs. Salespeople who work on commission are not Fiduciaries.
There is a whole movement afoot started by a colleague of mine to educate consumers about the risks of investing in whole life insurance. For more information check out the Whole Life Insurance Rebellion.
In my opinion, whole life insurance should have gone the way of the dinosaur but when you have a highly profitable product sold by a profit driven insurance industry with great lobbying power why rock the boat?
Why? I’ll tell you why. Because it’s the right thing to do. And that’s the truth!