Term VS Whole Life Insurance – What Do The Numbers Show?

Glen, just wrote a great article discussing the differences between Term and Permanent Life Insurance, and to my amazement he was very fair when it came to permanent life insurance.  Most financial bloggers aren’t as partial, and spout (without ever running numbers) the standard “buy term and invest the difference” kool aid.

So I asked Glen for the opportunity to actually run the numbers between term and permanent life insurance.

Since we need to start somewhere, lets start with our guy who needs life insurance:

  • Male
  • Born 7/1/1977 (Middle age between Craig and Myself)
  • Good Health – Rated Second highest (above standard but below
  • Non-Smoker
  • $5,000/yr Budget

The illustration I am running is from a AAA Rated Company that is older than a lot States.  Considering it is an industry leader, it is not the cheapest around.  We are going to look at 20 Year Term + Investment Account Returning 4% net VS. Whole Life Product. [Craig: Remember we are considering that a lot of people say to buy a Term policy and invest the difference between the Term and Whole life product rather than buy the Whole life insurance policy.]

Buying 20 Year Term and Investing the Difference

Since the $5,000/year budget buys $495,495 of whole life insurance coverage (we will discuss those calculations below), we will buy that death benefit amount in 20 year term life insurance, and then invest the difference.  To purchase that amount of term life insurance costs $450/yr and thus our difference is $4,500/yr.

Year End of Year Investments Death Benefit
1 $4,680 $495,595
5 $25,348 $495,595
10 $56,189 $495,595
15 $93,710 $495,595
20 $139,361 $495,595
Year Cash Value Death Benefit
1 $0 $495,595
5 $16,881 $500,049
10 $50,696 $511,955
15 $88,551 $530,006
20 $142,979 $573,411

So at year 20 you have a couple grand more, and your options

  • Cashing out the policy – taking the cash and walking
  • Create a ‘paid up’ policy – Using the cash to buy some amount of
    death benefit that where you won’t have to pay anymore premium
  • 1035 (a tax free exchange) into an annuity
  • Use the Whole Life Policy as a personal Pension

What about a Higher Return?  Different Gender?  Different Insurance

A change in any of the variables will change the whole exercise.  I just think people should actually run the numbers before quoting talking heads.

I will note that I only used a 4% return, because I consider the cash value in the policy safety money (the particular company I used to create the illustration has been well-established in the industry.)  If however I were to use 8% Net the numbers would look very different.  By Year 20 the End of Year investments would be worth about $220,000.

So you can see, choosing between a Term Life Insurance is not always the better option than a Whole Life Insurance policy.  You need to run the numbers yourself for your particular goals.

This is a guest post by Evan author of the Blog My Journey to Millions.  Evan is an attorney, admitted to practice in the State of New York and works as a Director of Financial Planning overseeing the firm’s high net worth gift and estate planning.  My Journey to Millions covers topics ranging from Estate Planning, his personal financial situation to libertarian views and hatred for big government.

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Published or updated May 11, 2013.


  1. Thanks for running my Guest Post!
    .-= Evan´s last blog ..The Wife and I are Expecting a Baby! =-.

  2. Evan/Craig:

    The 5th year face amount should be $500,049.
    .-= Evolution Of Wealth´s last blog ..Sunday Link Rodeo 24 =-.

  3. Awesome post! With whole life policies, you can recapture the costs of premiums…and then some.

    We use ours as a personal bank to earn the interest we would otherwise pay banks.

    Great to know that others question the “buy term and invest the difference” Kool Aid.

    • You have to keep an open mind with finances. The “experts” are good to listen to and many have great points but you can’t take everything they say as law.

  4. Hey ffb,
    I was looking at a client’s old policy from another company this weekend and the contract stated in plain English that there would be no accumulation in the Cash Value of the policy up until the 19th anniversary. What!? I scratch my head trying to come up with the benefits they flog clients with to get them to buy this garbage.

    Thanks for the more than fair comparison though,
    .-= Guy G.´s last blog ..Frugal Fatigue – Guest Post =-.

    • No cash value until 19th anniversary? Hmm. There’s something for us all to keep an eye out for now! Thanks for the heads up.

  5. This article has me confused. Which scenario is term and which is whole life? Where is the money being invested from the term policy? How much of a return is he getting on his investments? Seems a little unclear.
    .-= Olivia´s last blog ..Ready for the Real World Giveaway =-.

    • Olivia,

      Thanks for checking out the article, but I think you read it a little too quickly,

      “We are going to look at 20 Year Term + Investment Account Returning 4% net VS. Whole Life Product. [Craig: Remember we are considering that a lot of people say to buy a Term policy and invest the difference between the Term and Whole life product rather than buy the Whole life insurance policy.]”
      .-= Evan´s last blog ..What is Your Day Job or Profession? =-.

      • Why did the whole life amount grow more when they both earned 4% Did the whole life have dividends included in the $142,979 total.

        • I didn’t say the whole life is growing at 4%. I used the illustration software to use current dividend rate (which is higher than 4%). Re-read the article, I think you’ll understand it better with that knowledge.

      • This illustration is not accurate. I ran the real numbers, see below. Assume you are 32 and in very good heath and a non smoker. Bottom line, if you think you will die within 30 years of issuing the policy then buy whole life. The justification to NOT buy whole life goes up exponentially as you live longer and longer. This is a REAL quote, comparing whole life vs opting out and investing the ENTIRE premium amount. As for the tax advantages, if you really want to avoid them, in your early 50’s transfer the money to an irrevocable trust, it will not be subject to the estate tax.

        Age 72
        INVESTING: 6% interest, 2% dividend paying 25% tax on dividends annually from age 32, net value $1,970,000.
        WHOLE LIFE: death benefit of $1,300,000

        Age 82
        INVESTING: $4,100,000
        WHOLE LIFE: $1,700,000

        Bottom line this return of 1.7 million comes out to be a 4.75% return on your investment (premiums).

  6. Aaron @ Clarifinancial says:

    Great stuff. The moral of the story, define your goals first and then look and compare. Try to understand what the worst case scenario and the best case scenario are and what factors control each.

    Tax planning can be an important part of this decision too, depending on how you plan on using the money and investing it in the mean time.

    • Its no wonder many people don’t want to deal with this aspect of financial planning (as well as others). There are so many options and it can definitely get confusing. But that’s why is nice to put out some info that might help someone.

  7. citishark says:

    question and comments:
    1) what is the interest rate earned you used to calculate the Whole Life Policy?
    2) amazing what you can “create” when you compare plain policies avoiding to talk about the “whizzles and bells” in the Whole life insurance contract to make an “honest and plain ” comparison with PLAIN term insurance. No better way to deceive financially-uninformed people, uh?
    3) Why cash value does NOT start growing from day 1? (err…if I am paying the same premium and YOU say it goes simultaneously to pay x insurance and the rest to “my” investment account)
    4) among the “perks of ownership” in Hole Life policy are that “you can take money out, right? if you ever want to take it out to use it since its yours, its considered a loan against the policy. Why do loans come with – interest – at 6-8%? See..you earn 1-4% and when you want to use whats yours, they charge u 6-8% to use it…again this is a great policy. Flock to it!
    5) most people do not read the life insurance contract. Whole life contracts (ALL of them!!)If you would ever need to use this cash value, the insurance companies have a right to hold that money and not release it to you for up to 6 months. Say the market is booming and they are making great returns, they will hold your money as long as they can to yeild THEM the best profits. Sweet! (but …for whom?)
    6) Why isn’t it deceiving the consumer to call the return of overcharged premiums “dividends” as if they were new money earned and created by a real investment of the policyholder money? FTC and IRS refer to them in clear terms, as what they really are: “…mere return of premiums the insurance companies overcharge to the unsuspecting policyholder”…
    7) How all this compare con Level and Plain TERM now?

  8. citishark:

    I responded to your question here: http://evolutionofwealth.com/2010/05/response-term-whole-life-insurance-2/
    Too many question with too little space to respond so I figured I’d just make a post about it.
    .-= Evolution Of Wealth´s last blog ..Response to Term vs Whole Life Insurance =-.

    • citishark says:

      too many question in to little space? Let me help:
      #1 is a question;(you should write down a single digit number: 1 bit!)

      #2 is a comment. Does not require an answer!

      #3 is a question: 2-3 lies will be good.

      #4 comment and question: probably requires 1-2 lines to explain.

      #5 annother comment: no response required!
      #6 is question answered by me. You can comment if you wish
      #7 question
      for a big total of 4 questions. It is very possible to have the answers in even less space that the one I used. Try it!

      “Of all eloquence a nickname is the most concise; of all arguments the most unanswerable.” (W Hazlitt)

      • citishark, I love that there is discourse here and I appreciate a discussion opening up but we need to keep it civil.

  9. citishark:

    I responded to your questions here:
    Too many questions with too little space to respond so I figured I’d just make a post about it.
    .-= Evolution Of Wealth´s last blog ..Response to Term vs Whole Life Insurance =-.

    • Citishark,

      I would take a read of EoW’s response, it is very good. If you have any further questions after checking it out, maybe you can respond there or here (and maybe do it without being rude…)
      .-= Evan´s last blog ..What is Your Day Job or Profession? =-.

  10. citishark says:

    Evan, it is said that simple questions (usually) generate simple answers. IF the concept is so simple I do not see the problem to dropping a note similar to yout initial one and have your input in this blog. (I do not hop from blog to blog chasing words…..you get more viruses and citizens of Troy by doing that).

    But again…what do I know…..right?

    • citishark:

      Evan nor Craig asked me to respond I just butted in, that’s why your response is on a different blog. If you want to open your mind to some answers then they might be there. If you believe what you believe and it doesn’t matter what anyone says then don’t waste your time going there and reading.

      Is anything in personal finance truly simple? Or is there a whole lot more to it than meets the eye?

      Take the concept of “buy term and invest the rest”, I simply cannot find anyone who has had success with that strategy. Maybe it’s the economic times we are in? I know it can work, it sounds like you know it can work, but it just doesn’t. Just because things can work for people doesn’t mean they always do. It doesn’t matter the lesson, buy term, whole life, max out your 401k, etc, everything can work when done properly. It’s hard enough figuring out how to do things properly not even talking about which is best for your individual situation.
      .-= Evolution Of Wealth´s last blog ..Response to Term vs Whole Life Insurance =-.

  11. citishark says:

    My Last Try:
    I gave you FACTS; the idea is get your answers to them, not your judgement about me, my mind, concepts I believe or not. The basic point is your comparison of results from two different contracts without including important (for policyholder) details of one of the contracts. The questions are clear: shall we start with No1: What is the interest rate you used to calculate the return in the WL policy?

    Maybe we can continue with the rest of the answers instead of having tiring sound bites in return.

    • citishark:
      I wrote a post to answer your questions/comments. I went in depth to explain things. Read the post, it would not have fit in these comments. I’m sorry your efforts aren’t resulting in what you want. Why don’t you just tell us what you want us to say and then we can stop wasting each other’s time and we might not be subjected to your pleasant demeanor.

      Some of what you wrote is fact for some life insurance policies but not for all and definitely not in all circumstances. If you read my post you’d see that interest rates are not used in whole life policies. I further explain that in my post.
      .-= Evolution Of Wealth´s last blog ..Response to Term vs Whole Life Insurance =-.

    • I think what you wrote, in many cases, are facts for situations. Just as there are differences between Term policies and Whole policies, I’m sure there are differences between Whole policies from different companies and probably between different policies from the same insurer.

      The main point of the article is that there is no concrete black and white answer of whether Term is better or if Whole is better.

      For some, a combination may be best. Use a Term life insurance policy for years up to 45 or so then switch to a Whole life insurance policy for the remainder of your insurance. In this case you take advantage of the cheaper policy early (where you can invest the difference aggressively) and then switch to Whole when Term policies start to get more expensive and the risk factors for getting eliminated from a term policy start to increase (such as cancer, high blood pressure, etc…).

      Neither is inherently better or worse; they just fit different needs according to your situation.

  12. citishark says:

    ” Truth comes out of error more readily than out of confusion.” Sir Francis Bacon once wrote. Since you provide the ocassion for somebody to do it, let me make the difficult simple. By the way: Life -insurance included- is VERY simple! “somebody” always make it difficult…and there are reasons for doing so.

    Take the Whole Life and Level Term contracts (from example given above 20 yrs level). For easy and clarity let’s assume (that’s a given in WL case!) both accumulation occur at 4% and both grow to $140,000 after 20 yrs, ok?

    Whole Life: buying $495,495 in death benefit cost you $5,000/yr. after 20 yrs the policy shows cash value of $140,000. I’m not even going to discuss in which column that number is (“illustration” remember??). Lets just have “hope” & believe.
    Here are the details that nobody seems to grasp (!!??) 1) the whole life contract tells everypolicyholder that you can have either of a)death benefit OR b) the cash value. But with WL contract you can NOT have them both!! capici?. Oh yeah: you can tap the stash and take out money paying (yourself??)interest, right? By contract, ins. companies can hold your money x up to 6 mo; interest accrued is very low compared with other real investments; if you take all the cash value you have -by contract again!- you have to surrender/ cancel your policy. By the way: insurance companies print the contracts all together. When they “write” a new contract they just fill in your info. ALL ’em do that!

    Lets compare Term: buying the same $495,495 death benefit cost you $450/yr. You save $4550/yr, or $380 every month for next 20 yrs.say in ur bank. At the end of 20 yrs you really have $140,000 cash with ur name in it, and since the first day you sign the insurance contract is fully accessible and NO penalties, no interest charged to you and more important using it or not will NEVER affect your insurance contract. Just go and get it! Some people call it BTID. I do not care about zingers used to confuse people instead of educating them in how simple things are.

    With that information anybody with a useful brain in their head can ie half of it (just to make it fair!) and make a decision that is better for them and their families better than any “suggestion” traditionally given by “insurance experts”. As I said befire: life IS simple!

    I am convinced that ONE of the reasons why insurance agents push people to buy Whole Life instead of Term has nothing to do with “helping people with their finances”, “bringing expertise”…etc.
    To me is simple math : If you are insurance agent getting pay-say- 90% if the annual premium: would YOU rather take 90% of $5000 in every sale or 90% of $450 in one sale?

    Nobody needs to answer that one: the clues of how insurance agents and companies have answered that question is in the way they have done business for hundreds of years: the fact that 80%+ of the contracts sold in this country ARE Whole Life contracts (96% are cash value!!). Taking care of the “customer” all right!

    For the consumers in the blog:”It is not up to you what you learn; it is merely up to you whether you learn through love, or through pain.”

    Just a thought!

    • citishark:

      Thank you. Thank you for presenting your argument. Now I do have a question though, if I may? You bring up illustrations and hope with life insurance contracts. Do those exist with this investment account mention? Or more simply, where is it that you can get 4% guaranteed for straight years net of taxes?

      Whole life insurance, when set up properly, can provide a comparable rate of return to bonds with some tax-management if done properly. It has guaranteed portion and dividend participation. If you die you get the death benefit plus a majority of the cash value (yes, both).

      I admit that for the average person term insurance might be their best option. So they buy the term insurance and have the savings you mention. At the end of 20 years, how did they get the 4%? What type of account is the money in? If there is any tax-management then there are restrictions to access. Otherwise they will owe taxes, that’s a whole other can of worms. Or maybe I’m just complicating things because life is simple.

      After 20 years of saving money does effect your life insurance because you don’t have it any more. You’re term insurance is up. Less than 2% of all term policies ever pay a death benefit. That’s a lot of lost opportunity costs.

      I completely agree with you in regards to commissions. Most insurance agents are horrible at their job. They don’t understand life insurance and they definitely don’t understand what they are selling to people. They chase their highest commissions and this isn’t good for anyone. Maybe I’m naive to think that it doesn’t have to be this way. Every profession has people like this. Unfortunately the insurance industry doesn’t train people properly. They train people to make them as much money as possible as quickly as possible figuring they’ll be doing something else soon enough.
      .-= Evolution Of Wealth´s last blog ..Response to Term vs Whole Life Insurance =-.

  13. citishark says:

    well well what do you know…got somebody to have sane conversation! Beautiful! Let’s do it:
    a) investment account: please read my statement again: for the sake of avoinding smoking mirrors typical of this type of discussions I proposed that we -the people considering this comparison between Whole Life and Term contracts- assumed that BOTH sides of the comparison gets the same rate of growth in their respective accounts, ok? That way your “guarantees”, “rate of interest”, “taxes” etc are totally wiped out of the discussion -things are even to focus in the fair comparison of both contracts. ( I notice with interest the resistance until now of even mentioning the interest rate used in the initial calculation that gave the WL a “total death benefit”= $570k+. Funny, isn’t it?)
    b) you say: WL “set up properly”..”tax management done properly” : are you really trying to pass this on me? FAT chance bud! But since I hope some people will read this and for the sake of argument I point out: WHY even talk about that? Why the whole life policies does NOT come already “set properly” and with tax advantages build in for everybody?
    c) dividends: already mentioned them in previous note in this blog. Another “don’t even try it with me” label for everybody: I understand that what the insurance companies call “dividends” is nothing but a PARTIAL return of an OVERCHARGE that the company did to me to start with. And the fact that I do not pay taxes in my insurance “dividends” is because the money I pay for the overcharge payed taxes already (no double taxation ) not because the insurance company -or their products- are the “best thing after sliced bread as they let us believe. See why I do not even go into “participating” invitation?
    d) for how long do we need insurance? Common sense -when used!- tells everybody that you need insurance to cover POTENTIAL loss of something. Hence, I buy car insurance on the Benz I drive. I do not pay car insurance no more on the Beemer I sold 18 mo ago. Same is applicable to my home…and the one I sold, see? Life insurance goes the same waybut is here when the LI industry -companies and agents- do their worse job to people. LI is designed to protect your INCOME coming to your family in case you die and you have more obligations that money accumulated to cover them, ok? That’s why I rather direct most people to the Dave Ramseys of the world that ANY insurance/investment/financial decorated individual, focused more in commissions/trips and perks than in the working people they are supposed to serve. Now if you rub my bad side I will send you the wrong way too.
    In one line: in life we all are supposed to create and accumulate wealth as we get older. So we need the highest LI we can buy initially (high obligations+low if any wealth) at the time we start investing in the best vehicle we can find to consolidate our wealth. As time passes things are going to change: kids go, you pay debts, home, cars and have more wealth around you. Your need for insurance DECREASES (low obligations+ more wealth) to the point that you keep burial if any at all!
    e) “Less than 2% of all term policies ever pay a death benefit.” You are quick to isolate whole life from this fact. And I had the impression you were an insurance professional. Well, let me slip this one here: Insurance business/industry -and that include ALL possible policies WL, UL VUL, PUp, etc- works this way by design(statistical basis): “spread” the risk, ok? THat means for practical purposes that you get 95-97% of the insured/paying population contributing to legally pay for the 5-3% of insured/paying population that -in case of LI- are going to die WITH an active policy. Plus profits for the companies and employees. THat’s why -among other things- the ins cos. “use” (lingo for manipulate) Mortality Tables to calculate the rates they charge every single customer.

    f)”They don’t understand life insurance ..” “Unfortunately the insurance industry doesn’t train people properly..” Few LI agents do not understand what they do. I just cut that slack to the fools that end up buying WL UL et al for them and their families. Most of them end up doing the right thing for themselves….and that’s another @ ’em. Insurance companies spend in two things heavily:1) “their image” used to lure people to them/do business with them and 2) “train” their sales forces. Thing is they train them to do what’s is more convenient for the companies, NOT the consumers.

    Really appreciate the exchange we had, specially because for me- not having attachments or licensing ties with nobody- any opportunity to expose this information to others is invaluable.

    “We are drowning in information but starved for knowledge.”
    (You know who now!)



    • a) Is that your way of admitting that there is just as much hope of getting your 4% in your investment account? I want to agree that all things are equal but you haven’t presented an account that isn’t inherently different in terms of taxes, guarantees, etc.

      As for your interest rate comments, there is no interest rate in whole life insurance. If you are looking for a dividend rate they can be found for all the major mutual life insurance companies and I referenced the one used in my blog post.
      b) The reason the policies don’t come set up properly, my belief, is that they are set up in the best interest of the insurance company. However, they do have the flexibility to change and adjust them for individual situations. Aren’t 401ks set up in the best interest of the investment companies?
      Also if you were to start investing monies you act as thought things would or should be automatically set up right. They aren’t. Someone has to decide on the type of account, the investments with in the account and more.
      c) Again, read my blog. That is just one part of what makes up a dividend. A true mutual company dividends can benefit from the performance of their investment branches. I believe that all the major mutual insurance companies have an investment branch associated with them. (not sure about Northwestern?)
      d) This is where we’ll have to agree to disagree because I see many estate plans and businesses that need life insurance for longer periods of time. If only we all knew exactly when we were going to die so that we could put the insurance in place at the right time? I guess things wouldn’t really work then.
      For the average individual that wants to be have their cake (spend down their nest egg) and eat it to (leave behind a legacy), then life insurance might be a good thing to look into.
      e) Do you think there is a better chance of dieing with life insurance if the insurance is permanent and won’t expire at a specific point? Maybe with proper planning your family can enjoy the payout.
      f) I agree that it is a shame that life insurance companies are in fact companies and they are in fact a business. They make decisions to make money. If we understand and realize this there just might be opportunities there as well.
      .-= Evolution Of Wealth´s last blog ..Response to Term vs Whole Life Insurance =-.

  14. citishark says:

    Sorry about my delay in respond: my last note was written while waiting for last leg of my flight f/ Houston-Baton Rouge and got socializing that night and meetings/ celebrations/tourism yesterday. Running to airport again for trip back home; here some ideas (using the same numerals for clarity):

    a) Investment accounts: I proposed to agree for the accounts to earn 4% in both sides for us to have a clear comparison of BOTH insurance contracts. Just reading my previous note do that. But since you assert that “is just as much hope of getting your 4% in your investment account” you put me in a position for doing 2 things I was trying to avoid. First, start reading again from” a) Investment accounts” above. Second, I have to thank you to demonstrate publicly why insurance (products and companies) are NOT good investments despite what any insurance entity says: majority of them have no clue about Investments 101. Information about investments and returns IS PUBLIC: just search internet! Tip: Making it very simple: there are at least 21 Index funds that have returned between 4 to 9.9% return and 13 that had 10 – 15 % return since 1928 to market close of last week; Van Kampen( not one of my favorites but just to pick a name..) has 17 funds giving their clients 4-12% in past 10 yrs up to 3-31-10; you can blow your mind with PIMCO Vanguard, American, etc to learn some.
    For the past 20 yrs the average return for US T-bonds= 5.7%, Corporate B=6% Large Caps 13%, MicroCap 18.4% AVERAGE. At the same time SEC report the average “return” in insurance policies at or less than 3% (therte is a “return”!) That’s why little education come handy for everybody. And I repeat: a basic financial education enables any customer to have choices, see? (additionally: any financially educated person gain another strenght: has no problems in spotting financial phonies…)
    b) “Set Properly…” (Successful)Business –including investments- are defined as win-win situation. There is NO way in this Earth that anybody can compare the business of insurance and the business of investments: they are two totally different worlds even if we just count federal regulations for each one: NO comparison!. But focusing in the point at hand: a business that is set to”benefit the company” and the heck with the client has NO competitive edge. Matter of time to implode by itself…or change! That’s the future of insurance companies.( by the way: they have lost more than 4000 “professional agents” just last year…)
    c) Dividends: I still do not see the point to treat your client (by insurance companies) as an stupid human being by calling and try making ‘em believe that the PARTIAL return of overcharges are “dividens” they are “earning”. In my world, nothing could be more evil than CONCIOUSLY taake advantage of ignorant people we are supposed to educate. That is one of the beef I have with Whole Life contracts we are discussing here.
    d) How long we need insurance? Any serious and reputable financial professional agree in this point: The worse thing any person serious about creating wealth can do is use life insurance as vehicle to create it. That’s a fact hands down!
    e) Death Benefit : “Permanent” is another misuse of a word widely practiced by insurance beings. Any policy is as permanent as long as the client PAYS the premium. Period. Another is the phrase “if only we knew when we are going to die…” that insult the intelligence of any prospective client and even the insurance being trying to “get ‘em”. There is NO need of insurance at all IF “we know when we are going to die”. As I said before: insurance is a vehicle used to protect for a potential loss of something while we are trying to achieve a determined goal, and more important: UNTIL we achieve it! Not a second more! So we buy auto to protect the car(s) as long as we have ‘em; homeowners to protect our house, life to protect our income as source of building our lifetime wealth. It’s that SIMPLE and clear! I know: ins. industry dislike the concept in the life part (most lucrative for THEM) but use it in every other area.

    Amusing! Isn’t it?

  15. citishark says:

    by theway: no disrespect with not reading your other blog. But whay is the point of going somewhere when we can have a clean talk here?

    Besides, I try twice to get in but my “safety nets” twice advise me to avoid it or expose my comps/data in them to harmfull stuff.


  16. Your condenscending tone along with long winded responses that are both angry and judgmental are tiring at best. But can we break them apart, otherwise they are just overwhelming – I will response and wait for your response…I don’t have the patience of EofW because frankly I don’t care what you believe it makes very little difference in my life. He is a nicer person than I.

    A) You can’t propose that they both earn 4% because whole life doesn’t work like that. Whole life dividends (which you refuse to call dividends lol – but they are derived by investment returns and mortality returns) happen within the black box of the insurance company. Maybe that is reason enough for you to back off the investment portion of it. However, how many peope don’t understand the mutual funds they are invested in? OR how many “smart” people didn’t get the CDO their company was involved with?

    I am not sure where you get off stating that insurance companies are not good at investing? How many investment houses and banks went down last year? The company I used is in better financial shape than some states (albeit without the taxing power). GEICO (not a life insurer) was bought by WB just so he could invest the steady stream of premiums.

    All I did was compare a person with a $5,000 budget on both sides, I have the illustrations and calculations to prove what I wrote. Is your contention that I lied about numbers? At the end of the day you have those 2 buckets the question just comes down to which you want.

    I am glad you can read indexes, but the reason I used 4% (to reiterate) was the fact that the dividend portion grows/or shrinks according to bond funds, real estate and T-Bills. The reason is simple it is what the insurance company invests unused premium in.

    I couldn’t find the report you quote (I assume incorrectly/paraphrased since nothing that comes out of the SEC is 2 sentences) so if you could provide a link that would be great.

    Can we focus on this issue before jumping to another?

  17. citishark,
    There is a flaw in chasing averages with other investments. Let’s say that you invest $100 dollars in an investment. With a 50% decline, you are left with $50. But then with a 100% increase, you are back to $100 dollars.

    So what’s the average rate of return? (-50% + 100%) / 2 = +25%

    Here, the average rate of return is +25%. But you haven’t gained anything! You are back to where you started. Don’t let averages fool you.

    The growth in a whole life insurance contract is guaranteed and the principal and dividends paid back into the policies will not decrease (unless a withdrawal is taken).

    You have come up with almost every argument I have ever seen but you have to ask one question: Why do banks, large corporations, and rich people use whole life insurance? It’s because they understand how to use the tool for production today and not when has past. Once you understand how it can be used in a proper strategy, it can virtually beat any investment vehicle.

    To respond to your questions:
    1)I do control my policies. Since the growth is guaranteed, controlling the investments is secondary. Can you directly control other investments? Can people control their 401ks and real estate markets? No. They buy and pray.
    2)The stability of the contract isn’t affected when you take out money. It will pay you the death benefit minus any outstanding policy loans.
    3)You’re forgetting a critical piece here. How much taxes do you pay on $495,595 from your other investment vehicle? I can access ALL my cash value with very little to zero tax implications. Uncle Sam will like it if you invest your way.
    4)I’m thrilled because these paid up additions go back into my policy and by additional coverage and allows the cash value to grow at a faster rate. This isn’t a taxable event either, making it very efficient. Do you pay taxes on other dividends from other investments?
    5)Whole Life policy or Level Term policy are neither better than the other. I’ll use this analogy: Would you rather have Tiger Wood’s golf clubs or his swing? The product doesn’t matter unless you know how to “swing” it.
    6)I agree with citishark here. Go with what helps you sleep at night. If you don’t understand whole life insurance, get term policies. However, I suggest you do homework because this one powerful wealth tool when properly utilized.

    • citishark says:

      Thanks for your insights Bern. It’s time for me to read opinions. A short comments to clarify:
      1) “chasing averages…” and the rest of it is what people in ins industry uses to divert attention of main thing: HOW the contracts work. That IS a fact written and (mercilessly) executed as the contract it is. To avoid engaging in usual trick/discussions/opinions of hypotheticals in investments I provided with solid facts: the actual returns for investments -some cummulative returns since 1928 (that’s 4 big financial crisis) others 20 yrs cummulative trails. At the same time I provided known average performance of cash value insurance contracts for 25 yrs for comparison. Rather discuss facts on hand that engage in loose comments/opinions/ assertions of different possibilities or potentials.

      It is better to see in clear water that murky water!

      I appreciate your opinions and understand your position.

      • Why does everyone get so caught up in averages? I guess if you going to make the case for indexing then yes let’s talk averages. This might change the conversation a bit.

        If we are talking about active investing isn’t the goal to beat the average? Of course this throws a lot more tax implications.

        As for life insurance returns, would you admit that a properly designed whole life insurance policy would beat the average?

        • citishark says:

          No admission here since no WL contract EVER beat “the average” (no clear definition offered). But a properly selected equity investment ALWAYS beat any WL insurance contract in short and long term. That is why the insurance companies multiply their gains in premiums by investing in diverse equities while “guaranteeing” policy holders lower returns than the ones they make. That’s the nature of the business!

          • “But a properly selected equity investment ALWAYS beat any WL insurance contract in short and long term.”

            That’s a pretty strong statement to make. I think we have to understand what a properly selected equity investment is. How many people can properly pick an equity investment that will give them guaranteed returns? Over 5 years the S&P is flat, over ten its down.

  18. citishark says:

    Reading again your post I decided to add info to this piece of your note. You said: “There is a flaw in chasing averages with other investments. Let’s say that you invest $100 dollars in an investment. With a 50% decline, you are left with $50. But then with a 100% increase, you are back to $100 dollars.So what’s the average rate of return? (-50% + 100%) / 2 = +25% Here, the average rate of return is +25%. But you haven’t gained anything! You are back to where you started. Don’t let averages fool you.”

    I like to analyze facts because they are done deal, real and solid facts. If you analyze the S&P in past 20 yrs and create the worse case scenario by endidn the 20 yrs period at the time when their worse losses occured, ok? That’s 2008 when they lost -37% of the money. They produced +8.41% avg annualized COMPOUNDED return from 1988 – 2008.

    Do not know or do not want to “let averages to fool you”? Try this: same period S&P produced a cummulative (after adding gains and substracting losses) of 197.49% return to investors, Compare this with the returns described in previous posts above.

    Do not be fooled: Rich people always try to get richer! They are no stupid people or unable to discern which vehicle(s) help them to achieve their goals better. Does somebody still think that rich people run to buy insurance instead of investing their money in more solid and rewarding grounds? Do you know that banks, insurance companies and other financial institutions are always looking for the highest return they can get in the market and are the biggest buyers of bonds, mutual funds, equities? They get the BIG double returns and consumer always get low single digit (by contract) every single time!

    There is a choice for everybody reading here: Poor can keep chosing being poor by the decisions they make or can start studing how rich people build wealth …and imitate their actions: they’ll soon discover how possible it is to get the same desirable results.

    “One who asks a question is a fool for five minutes; one who does not ask a question remains a fool forever.”

  19. “They produced +8.41% avg annualized COMPOUNDED return from 1988 – 2008.” That’s pretty impressive. However, he average equity fund investor earned a market return of only 1.87%. That doesn’t sound like it’s keeping up with inflation.

    I have to correct you about your statement of rich people not utilizing whole life insurance contracts. Robert Kiyosaki, Donald Trump, and Warren Buffett all use these contracts. They understand the strategies. Search “warren buffett whole life insurance” on the internet. Sounds like you might trust his opinion.

    I have to correct you about your statement of banks not utilizing whole life insurance contracts. Banks own a lot of whole life insurance policies. Some use the policies for reserves, as a tax-free funding scheme for employee benefits, and more. Search for “bank-owned life insurance” (BOLI) on the internet.

    I agree with you, “start studying how rich people build wealth”, along with how banks make money. They care about the strategy; the product is secondary. A lot use whole life insurance because they understand the strategy.

    You don’t have to be rich or a bank to implement it. You may have to have an open mind.

  20. citishark says:

    Bern, your note sounds like you are saying or trying to imply that a whole life insurance contract produces better returns that investing in realk investment vehicles? As I asked before: Do you know that banks, insurance companies and other financial institutions are always looking for the highest return they can get in the market and are the biggest buyers of bonds, mutual funds, equities?

    I’ll invite you to read more carefully the corresponding paragraph above. I did not say or imply that rich people “do not have life insurance” because they use the contracts to protect parts of their exposures and risks. But from that for anyone to imply or affirm that they BUILT their wealth by using insurance contracts instead of investment vehicles is a total falacy that better be proved with solid facts. And that’s what I’m saying in the paragraph “.. Rich people always try to get richer! They are no stupid people or unable to discern …” above.

    Your comment about returns of equity funds have no base here unless you are trying to illustrate that there are sectors that did not perform as well in the market(smoking mirrors?). We know that there are always winners and losers in any market. Our job is pick the WINNERS for us and our customers…but if anyone pick losers for themselves or their customers (or use their returns as guide to push the sale of low performers without even paying attention to market leaders/winners), that’s again a personal decision. Now in a competitive business where information flows constantly, people doing that end up not being competition at all.

    A generous man will prosper; he who refreshes others will himself be refreshed. Proverbs 11:25

    • Citishark:

      Maybe we’re saying the same thing? If you’re poor buy term insurance. You probably won’t have enough to do anything else including investing the difference. You should protect your love ones so get term insurance.

      If you’re rich, consider whole life insurance to help your situation. No it’s not a replacement for investing but instead a different asset on the balance sheet that might just have some benefits that can enable you to become more wealthy.

      Then there are the in between, maybe that’s what we are discussing about. The problem here is there is just too much disparity. There just might not be one answer for all and instead the answer would be to keep an open mind.

  21. citishark says:

    the title of this blog is “Term vs WH Insurance: What the numbers show”. If you dare to say what you just did, I invite you to show YOUR numbers that back up your assertions: a)” if you are poor…if you are rich”…b) even more enlightening:what ARE the benefits that you trumpet as “benefits that can enable you to become more wealthy” by using Whole Life contracts against any other investment.

    Just reading the data already posted here comparing WH with any other investment vehicle, Don’t you understand the position you put yourself in ?

    And sorry to break the news: I do NOT even think the way you describe yourself doing: ” if you are rich…”etc. I give my clients -rich and poor- the best INVESTMENT vehicles possible to achieve their respective goal of wealth. As anyboy can see in previous postings there are several choices to select from (for fairness I showed averages of different inv vehicles: you’ll be shocked to see the numbers the top of the pack produce!) And I can not count one of them where I EVER use a WH contract to achieve wealth creation, the precise point we have been discussing here. Keep in mind: I am NOT “married” with any insurance (or investment for that matter) company.

    I can wait to see your numbers!

    • Your replies are angry at best and incoherent at worst so just relax and breath it out so we can have an intelligent convo about this way too heated subject.

      “I can wait to see your numbers”

      Didn’t I show numbers? Didn’t I provide 2 people in this situation? Are you disagreeing with the numbers I used? Do you not like that I used 4% and the current dividend scale? Please just answer yes or no and I’ll provide different examples.

  22. We’ve had a lot of comments going back and forth between you guys and I love the discourse! But it seems no one is going to convince the other that their argument is the best. Let’s agree to disagree here and leave some room for other people to comment or ask questions.


    • citishark says:

      the room is and always have been there ffb, What you need is more participation. It’s your blog: At your request mine ends right here!

      (from the “angry” one!)

      • Great way to put it FFB. That’s sort of what I was trying to do. Ignorance can be tiresome but a closed mind just becomes a waste of time. Feel free to quote me on that.

        Keep up the good work on the blog FFB, I thoroughly enjoy reading.

  23. citishark` says:

    (angry maybe?)

  24. citishark says:

    you can manipulate the input in your blog, but you can not stop the facts (some call it truth!) to shine freely elsewhere. And more and more people are becomin more and more educated about insurance contracts and how they really work. As you all know, the more informed the consumer becomes the more difficult it is to “do business as usual! .

    Good luck!

  25. I’m sure the wealthy, banks, and corporations like investing in other assets and vehicles. But, whether you hate whole life insurance or love it., the fact remains: Many of them utilize whole life insurance contracts to create wealth. It is part of their strategy.

    The questions that can open our minds are: Why do they use products? How do they use them to create wealth?

    Questions are more powerful than the answers.

  26. SmartMoney says:

    This article is laughable at best.
    Only a moron would invest the term savings for 20 years and get a 4% rate of return. A typical bond fund provides returns at 3-6% while the average mutual fund averages 8-10% for almost any 20 year period. It is obvious that this article is written by a whole life agent because the only that a whole life ever comes out ahead is by assuming such ridiculously low returns.

    Why don’t you go read some Suzie Orman or Dave Ramsey, who are well known professionals and respected enough to have dedicated TV shows and top selling books.

    This article deserves to be in the same place as the whole life policies you screw your clients with – In the trash.

    • I wrote it, and I have been called a lot of things in my life but a moron is not one of them. I am licensed to sell whole life insurance, but have never sold a single policy because I am more of a back office guy.

      But your very constructive comment is duly noted lol

    • The past ten years haven’t yielded much in the stock market. As much as we’d like to believe otherwise there’s nothing to say the next 20 will do better overall.

      I know many talk about whole life as bad but I don’t believe that is an absolute for everyone.

      I’ll listen to financial experts too, but you have to still make your own decisions. What an “expert” says doesn’t always fit your circumstances.

      Not to argue this point here, but I’ll admit I never read any Dave Ramsey. Is he a financial professional or just someone who went through debt himself and came up with a way that others could follow (Orman worked as a broker, I believe). Just food for thought.

  27. i was wondering….reading this whole debate…get it ‘whole’…wouldnt it be better if you purchased an affordable term life policy and then from another company purchased a whole life policy. that way you get the best of both worlds.

    • How do you mean? You wouldn’t want to buy double the coverage you need since that would be inefficient.

      I believe there are plans out there that can start as term and have the option to convert to whole.

      • well i can’t convert my SGLI term just yet, so i was advised to buy a flexible premium universal life, because of the tax deferred savings… so i did. they said it was okay to have term and whole at same time.

        • thekid:

          You’re in the military. I wanted to thank you, I truly respect that. Your SGLI coverage is term insurance. It is not convertible in the more widely used sense of the word. The reason I say that is because SGLI discontinues when you are no longer serving active duty. You then have the ability to covert your SGLI to VGLI. VGLI is also term insurance. It is essentially annual renewable term insurance that adjusts in price with age brackets rather than each year. It will continue to go up in price but you can continue the coverage. This is a special program offered by the military and that is why it is different than most other life insurance.

          Also just so you are clear, you don’t have whole life insurance. Universal life insurance is a different animal all together. It works completely different and is hugely dependent on the way the policy is set up because there are very little guarantees. Truthfully, Universal Life policies scare the crap out of my because most insurance people don’t set them up in the best interest of the policyowner and by the time the policy owner realizes the insurance guy is long gone. I’m not saying that is how yours is it just seems to happen most of the time.

  28. what does cash vaule tax deferred actually mean…i mean what does it kinda do for me.

    • I’m not familiar with Universal plans either but tax deferred means you aren’t taxed on your earnings until you start to withdraw them.

  29. Hi Evan,
    I would like to thank you for going through the trouble of breaking this down.

  30. From what I read you guys do a good job of answering questions in polite way even though some people try to be sarcastic. I wanted to know how the whole life cash value grew more if both figured 4% interest. Also If I wanted to take out the cash value how would that reduce the death benefit. Would it reduce it by what I withdrew. On last question, let’s say I died at the end of year 20 would my beneficiary get both the death benefit and the cash value? What exactly would they get?

  31. citishark says:

    GOod questions Jeff!…but I’m afraid they think they are “spam” ’cause I do not see your note posted (!!??) so I assume no answers coming back to your inquire. Anyway: spend 15 minutes getting an idea directly involved with the theme in this blog and complete related with your questions.Listen to the man that started the whole shabbang here:http://www.cbn.com/media/player/index.aspx?s=/vod/SUS37_ArtWilliams_111406

    • Thanks for your reply I want to understand the numbers they have and how they came up with them and how they pay out.

      • citishark says:

        I see this dialog is not at end of blog (today is 3-19-11) but I read your note. Let somebody bring the wisdom out and we’ll see!

  32. Thanks Evan it was obvious they were different investments because the whole life started with less and ended up with more but I didn’t understand how you got that.
    I also had a question about at the end of 20 yrs if the person died would the beneficary get the 573,000 plus the 143,000 what exactly would they get?
    Also if they took the cash value of 143,000 how would that effect the death benefit of 573,000.

    • If you die your family would get the death benefit not both.

      It is hard to give a hard and fast answer, but how and when you “took” the $143K determines what happens to the death benefit. It may reduce the death benefit because if you had a loan against the 143K that obviously has to be paid back. However, if you withdrew a couple grand from the $143K and the underlying contract could still support itself then nothing would happen to the death benefit.

  33. Robb Cooper says:

    The numbers in this article are extremely deceptive. I am not one of those guys that believes that there is a blanket answer for anything, however, as a licensed professional in the field, I can tell you that the “buy term and invest the difference” strategy is best for 95% of families out there. Here are a few fallacies in your argument.
    1) The difference between $5K and $450 is $4550, not $4500. You can not discount that extra $50, especially when it comes to compound interest.
    2) Where in the world are you going to get only a 4% interest rate on investing the difference? The theory in question is “buy term and INVEST the difference, not buy term and buy US Bonds. Even if market performance is poor, and a person only receives a 6% return, the he is looking at $177,416.91. In a good market, a 10% return would yield $286,661.37. Both of these are superior to the projected $142,979 which is supposed to be built into the whole life.
    3) You can not add the cash value inside the whole life policy to the death benefit. In most cases, if the insured dies prior to the maturity date (which can range anywhere from age 85 to 100) they do NOT receive both the cash value and the death benefit. They usually only get the death benefit. THE INSURANCE COMPANY KEEPS THE CASH VALUE.
    I do appreciate the fact that you are running the numbers to compare the two, but your numbers have to be an accurate reflection of what the two mindsets represents. I have sat down with couples who were years into their cash value policies, and was still able to give them a better deal with the BTID philosophy.
    The biggest tragedy I see, however, is that most families who have any type of cash value life insurance (whole, universal, variable) is that they are drastically underinsured. These types of insurance are expensive.They are paying out the nose for life insurance that would still leave their families in a bad situation if something happened to them. I always stress that a family should get the proper amount of coverage as the top priority, and that the type of insurance is secondary to that.

    • citishark says:

      5-4-11: I’m with you Robb. Only one thing: in the numbers Evan presented in beginning of the discussion, the “Death Benefit” value does NOT represent ” theface value amount+cash value”. Seems to me that the “death benefit” value could come from “the face value + paid up additions” buyed with cash value at different times as per his illustration. Since it is not clearly explained Evan is the only one that can explain those numbers.

      Totally agree that one of the worse effects ANY client’s beneficiaries get from cash value policies is the fact that they ALWAYS get lower face value when compared with Term policies, and even in the case when zillionaires buy the face value they need the astronomical cost proves another disadvantage of CV: the beneficiaries only get one benefit: either a) the Face value (which by contract INCLUDE the CV) or b)the cash, and by contract SURRENDER the policy.

    • I am actually the one that wrote the post, so I hope you don’t mind if I go through each one of your points bit by bit using your numeration.

      1) That is a ridiculous mistake on my part and I can’t believe we are 67 comments deep before anyone noticed!

      2) Well to answer your first question where am I getting 4% I would turn to TIPS, but that is besides the point (think they are at 4.6% right now). Who made you boss that it is buy term and invest the difference in anything but US bonds? lol I made it very very clear that if you use 8% you’d get a different result (think it was in the last or second to last paragraph). I was comparing safe money to safe money. I’d bet on certain mutual companies way before I’d bet on my home state of New York or Cali.

      3) I don’t think I made any indication that you would get both. I apologize if it seems that way to you.

      I couldn’t agree with you more that the problem with these policies is how expensive they are in terms of pure dollar cost out of your checking account. At 29, it is the reason that most of my insurance is in 20 year term (I have began to convert some of it since I wrote this post), but if you can afford the premium to completely ignore these types of policies is ludicrous just because you believe in the hype of buy term and invest the difference.

      Unless you are in an estate planning situation (i.e. net worth of 5million or so depending on age) I look at whole life as just another weapon to use along with a properly funded retirement account, non-qualified investments, an emergency account, etc.

      • Robb Cooper says:

        Thank you Evan for your reply. I assume then that the additions that you are making to the cash value are paid-up additions, as Citi-Shark stated, or re-investment of dividends. I would have to point out to you that most Whole Life policies do not carry these options, the death benefit will always remain level, just like term, and even in the policies that do, it doesn’t happen every year.
        Also, most BTID believers will not invest in “like” investments, they are going to go for Mutual Funds or Indexes, and the expected rate of return is usually 6-10%, not 4% as your chart indicated. Even if you are matching a 4% return against a 4% return, there is no way that a cash value inside an insurance will catch, much less surpass, an account that a client has opened on his own. First of all, for the first 3-5 years in a whole life policy, there are no savings, the additional money goes out in fees and commissions. Secondly, the insurance component is more expensive with Whole-life (permanent insurance is more expensive than term), and the fees associated with the cash value are higher, so less money is going into the account on a monthly basis is much less with whole life than it would be if you were buying term and investing the difference. The $142K that you have above as the cash value at the end of 20 years is highly inaccurate, it will be considerably less.
        Imagine that your bank said to you “Evan, we’ve got this great new account that pays you a guaranteed 4% interest, but for the first three years we’re going to keep every bit of money you put in, that is our fee for doing this for you.” You would probably say, “thanks, but no thanks.” However, that is exactly what the cash value with a whole life policy does, anyway you look at it, it is a terrible investment vehicle.
        I also find it very interesting that you have most of your coverage in term, whereas the example that you have written does not.
        I have recently written an article @ http://hubpages.com/hub/Kingdom-Crowns that shows a person how to compare term vs. whole life. Take a look at it and let me know what you think.

        • I am always willing to have a coherent discussion about the topic. Citishark is often incoherent so it is a nice change of pace lol

          Your first assumption is correct I am using paid up additions. As you are very aware there are a ton of different options and riders when dealing with whole life. Making one change to any of it warrants a different discussion – I could have used Renewable term rider or maybe have the entire policy paid by X years, etc. etc.

          Again, as I mentioned if you are going to compare it to 8% whole life is likely not going to be the investment choice. I never really argued against that…that being said who would have won out in the last 10 years (rare example I know).

          I don’t really understand your next point (explained two paragraphs) “The $142K that you have above as the cash value at the end of 20 years is highly inaccurate, it will be considerably less.”
          – I used a real illustration this wasn’t a guess.

          The reason I have most of my coverage in term is because or your first 2 points (the best 2 points)…I didn’t have the budget for the amount of coverage I needed.

          • Robb Cooper says:

            Thank you for the clarification on the paid-up additions, Evan. Although, as I was saying before, since most Whole life policies do not carry this option, the comparison that you are using is a little slanted. If you add that to the fact that you are comparing the cash value to a 4% returning investment, your numbers really don’t reflect an accurate comparison of Whole Life vs. Buying term and Investing the difference. As I said before, the BTID side of the comparison chart should read somewhere between $177K to $287K.
            As for the Whole-life side of the investment, what I apparently did not explain to well was that I was a little puzzled how the $143K figure was arrived at. Less money is going into the cash value account on a monthly basis then what would go into the investment if a person purchase term (due to higher expenses and fees), and it also starts 3-5 years later (due to fees and commissions charged to the client). It seems pretty impossible that a 4% returning cash value could ever catch, much less surpass, a separate investment in value. If I take the difference between the term policy and the whole life ($4550 annually) and run it at 4% for 17 years, then I only come up with $107,823.68, not the projected $143K that you come up with. Since the permanent life insurance portion and fees are higher on whole life than on term, then the actual number should be less than $107K.
            As far a who has won out over the last 10 years, that is different from individual to individual. Personally, my more aggressive funds tanked, but my most conservative investments, such as my bond fund, did not do too badly. This is the benefit of professional money management and a well-diversified portfolio. Thanks to another pet theory of mine, Dollar Cost Averaging, it only took my investments about 2 years to rebound. It was like they were on hold 2 years, plus I have an incredible amount of shares accumulated. If you compare this to the 3-5 years investments I would have lost in a whole life policy, I’d say I still came out on top with buying term and investing the difference.

            • I don’t think it is slanted whatsoever. That is the company/product I used – I didn’t use it for any other reason than that is whose illustration system I have access to. I could have gone deeper into different riders or different options….

              I think I understand your confusions and feel free to correct me if I am wrong…but you think I am using 4% on the life insurance side of the equation? and that is why you don’t get how it is growing that fast?

              That is NOT what I am doing. I used current dividend rates. They could go higher and they could go lower just like 4% could go higher and 4% could go lower. I am letting the illustration system do the calculations as to what the Cash Surrender Value will be worth.

              So if Company XYZ is paying 3,4, 5, 6 or 7% dividend rate that is what I am using. I think you think (odd to type that out) that I am buying whole life insurance and whatever is left after mortality rates is being invested at 4% and that is not what is happening.

              So as I pay up additional ‘shares’ of life insurance there is a compounding when I receive my dividend for that particular year.

              Regardless of whether you still disagree with me does that make more sense now?

              • Robb Cooper says:

                Thanks for the clarification. I was assuming a 4% return on the Whole Life, for two reasons: 1) It seems to be an industry standard, and 2) I had thought that you chose the 4% return on the separate account associated with the term policy to compare a like rate of return.
                Just for additional clarification, however, how is both the cash value and the face amount increasing with the dividend distribution? Usually, the dividends either re-invest in the cash value or are used to purchase paid-up premiums, they don’t do both at the same time.
                It also looks as if the example you have stated shows the dividend being paid every year and going into both the cash value and purchasing paid-up premium. Let me know if I am reading that correctly.

                • Robb,

                  Not sure where you got 4% as an industry standard:
                  MassMutual – 6.85% 2011
                  The Guardian – 7% 2010
                  NorthWestern – 6% 2010

                  I am sure you can find others, but those are 3 big mutuals that come to mind and I just googled their name and industry standard.

                  As far as the second part of the question, I would suggest that you request a copy of an illustration from a buddy in a mutual company. Being in the financial services industry/ living in CT…I am sure you have one. Take a read through it or maybe I can ask Glen if I can do another guest post on how that part of the product works…just really too much for a simple comment response.

  34. citishark says:

    5-12-11 Evan, Robb quotation is correct: it should say that the “average return” from cash value policies is 4%. But again, everybody in the industry know this FACTS. By law they have to present “numbers” to regulators in a regular way and when required. But for purpose of this discussion here more public facts that side with Robb statement:
    Here are Blease’s rankings of national companies over the past 20 years, with the annual rates of return for a policy sold in 1991 to a man who was 55 years old that year (average return from 1991-2011):
    –Northwestern Mutual, 4.44%
    –New York Life, 3.37%
    –Thrivent, 3.20%
    –MassMutual, 3.01%
    –The Guardian, 2.62%

    • Robb Cooper says:

      Thanks for the back-up CitiShark. To answer your question, Evan, I got my assumption of a 4% average return based on what I’ve seen out in the field. I think a lot of us here are on the same page when it comes to wanting to do the right thing by our clients. The problem with this article is that it can be easily misread.
      The point, as you have stated, it that there are cases where a person would be better off with a whole life policy. The problem is is that you illustrate your point by calling BTID “Kool-aid” and then show an example that compares the Cadillac of whole-life products vs. the Chevette of investment products. If a person were to purchase this whole life product vs. sinking their investments into something giving them only a 4% return, then they actually would be better off with the whole-life. Unfortunately, this is usually far more the exception than the rule. As you have stated yourself “That being said, for the average person out there, I will admit term insurance is probably better.”
      A person could easily misread this article as a blanket recommendation of whole life, and think that whole life is the best option always. However, I have sat down with families who were years in to whole life policies, and have been able to show them how to come out better by buying term and investing the difference. I assure you that it is far from “kool-aid”.
      Most of the policies I have seen return more like the examples CitiShark has shown than the you have posted. Also, I usually have to address a lack of adequate coverage first. Why? Let’s take the example above. $500K of coverage with whole life comes out to @ $417 a month. The wealthy may not blink at that, but the average Joe is going to say “no way”. Then, rather than showing the client how he could get the proper amount of coverage with term, the agent is going to insist that whole-life is the way to go, and reduce the coverage drastically in order to keep it within the clients budget. Why? Because the pay out and profit on cash value policies are 2-3 higher than they are on term. The agent walks away with a nice commission, the insurance company makes a lot of money, but the family is left underinsured. I see this time and time again. This is also why when you see an article on “buying term and investing the difference”, insurance agents show up in flocks to defend cash value policies.
      I would take this same client listed in the example above, and steer him toward a 30 year fixed level term as opposed to a 20. That would take him to age 63 as opposed to 53 , and give him more time to save money, and recover if any unexpected downturns in the market occurred. Then I would show him investments that have averaged anywhere from 8-12% over the last 30 years. This strategy would beat the pants off of any whole life policy any day, and in any situation. I believe that when most clients sit down with someone who can honestly help them compare the two options, they will be better of with term 95% of the time.

  35. With Whole Life Insurance you never get the death benefit and the cash value! You have to borrow your cash value, @ 6 – 8 percent. If you just take the cash, reduces the death benefit. Life Insurance is tax free when a specific beneficiary is named, like your spouse or children. Death benefits do not have estate taxes! Term is pure protection, 20, 30, 40 years. Some policies have guaranteed insurability clauses, meaning no proof of insurance is necessary to renew. The rules of investing have not changed, proper asset allocation, diversification, and time! Even tho the market crapped, it came back and the average rate of return is still 10 – 12 %. Your own money, you do not have to borrow it if you need it, and it has no effect on a death benefit. These are two different vehicles for two very different purposes and should not be bundled together.

  36. VoiceofReason says:

    You guys are arguing a pointless and never ending topics because each of these products are effective when 1) they are structured properly and 2) used for the right client. You can’t argue that one is better than the other. Each is a strategy used for a different situation. For example: buy term invest the difference is great for a young family that has a large mortgage and other debts that they intend to pay off over their life. However capital is low and they need the money to pay off debts, create a rainy day fund and have retirement savings. A whole life strategy is great for someone that maybe has more disposable income needs life insurance wants to minimize taxes and have conservative growth over a period of time, maybe to diversify there portfolio’s. That’s not to say they do not have money invested in other places. Another great strategy is having the whole life owned by the business allowing the money to be contributed at the corporate tax rate. The money will grow at a conservative growth but can be borrowed against personally. Savings thousands in taxes! THESE ARE STRATEGIES PEOPLE not all strategies are meant for every kind of client!!! it bothers me that people are so blinded by one strategy they insist on knocking the other and seeing no benefit or use.

  37. VoiceofReason says:

    You guys are arguing a pointless and never ending topics because each of these products are effective when 1) they are structured properly and 2) used for the right client. You can’t argue that one is better than the other. Each is a strategy used for a different situation. For example: buy term invest the difference is great for a young family that has a large mortgage and other debts that they intend to pay off over their life. However capital is low and they need the money to pay off debts, create a rainy day fund and have retirement savings. A whole life strategy is great for someone that maybe has more disposable income needs life insurance wants to minimize taxes and have conservative growth over a period of time, maybe to diversify their portfolio’s. That’s not to say they do not have money invested in other places. Another great strategy is having the whole life owned by the business allowing the money to be contributed at the corporate tax rate. The money will grow at a conservative growth but can be borrowed against personally. Savings thousands in taxes! THESE ARE STRATEGIES PEOPLE not all strategies are meant for every kind of client!!! it bothers me that people are so blinded by one strategy they insist on knocking the other and seeing no benefit or use.

  38. Robb Cooper says:


    You are correct when you point out that these are both strategies, however, there are good strategies and bad strategies. Unfortunately, Whole life, or any cash value product, falls under the bad strategy category. Any way you look at it, no matter what a persons investment objective is WHOLE LIFE IS A BAD INVESTMENT!! You can ALWAYS, and let me repeat that ALWAYS beat BOTH the insurance and savings component in Whole life by purchasing life insurance and investments that are not tied together. Term Life insurance is much less expensive than Whole Life. PERIOD. Mutual Funds, Annuities, and other investments perform better than Whole life and offer the same, or better, tax advantages. PERIOD.
    The only ones who really profit from whole life are the agents that sell it, and the companies they sell it for. As a matter of fact, unless a person opts to pay extra for the more expensive option B, than they will never receive both the cash value and the death benefit, they will ONLY receive one OR the other. In other words, MOST PEOPLE WITH WHOLE LIFE INSURANCE ARE PAYING FOR TWO THINGS, BUT ONLY GET ONE, AND ARE BEING ROYALLY SCREWED BY THIER POLICY. Does that sound like a great investment strategy for anyone?
    So yes, it is a question of strategies, but I guarantee you that I could sit down with ANYONE who owns ANY KIND of cash value product, and come up with a CLEARLY SUPERIOR INVESTMENT STRATEGY, as could any financial expert who was willing to settle for less of a profit in order to do the right thing by his/her client.

  39. http://kleppingeragency.blogspot.com/

    I believe you have to find the right product for a particular situation. One size does not fit all with insurance. Permanent insurance is better in the long run.

  40. Robb Cooper says:

    Clarify my thinking. How is having less of a death benefit, less savings, and a policy that ultimately screws you in the end the right product for any situation?

  41. Found this article at mainstreet.com that address the other side of the angle for this discussion. And this time this is not coming from “The Picker”!! Here it goes:
    There are better ways to invest.

    Universal, whole life and variable life insurance policies do more than pay out when you die. By paying for more than a term life policy and continuing your premiums indefinitely, your policy accumulates cash value over time.

    This approach can work as a method of “forced savings,” because you’re highly motivated to make those monthly payments with your policy at stake. But you can invest by other means and do at least as well as by paying an insurer if you have the discipline to sock the same amount away. “Using costly insurance contracts primarily as investment vehicles is generally inferior to purchasing low-cost, term life policies and investing the difference yourself,” says Rande Spiegelman, vice president of financial planning for the Schwab Center for Financial Research.”

  42. I do not know how my recent post from Nov-27-11 come as #85 in this thread way above the #93 I posted several months ago……Go figure!

  43. Andrew Lynn says:

    This article is about numbers and not about consepts, i was looking for something similar. I work in insurances and also have a lot of them on myself=) Like when i open a new bank account, they ask me to sign a life insurance with them, crazy isn’t it? Also i have insured my dog, his health actually, now paying 40$ a month, do you think it is too much for pet insurance? Well i better keep reading, great blog. Thanks.

    • Robb Cooper says:

      I would never recommend anyone to take out insurance on their pet, it’s a waste of money. Although I’m sure some of these Whole Life agents will be glad to sell you some.

  44. Always Invest says:

    This is a bogus post.

    The reson the author chose 4% is becasue that is probably the payout of his company’s life insurance policy.

    The reason you don’t buy whole life is becasue its not a good investment policy. At 4%, you are hardly clearing inflation.

    Stick eith your 401ks and mutual funds.

    • Maybe if you actually read the post you would have seen:

      “I will note that I only used a 4% return, because I consider the cash value in the policy safety money (the particular company I used to create the illustration has been well-established in the industry.) If however I were to use 8% Net the numbers would look very different. By Year 20 the End of Year investments would be worth about $220,000.”

  45. Hey Guys, Interesting thread. Working with friend to better understand insurance tables. The Cash value is pretty easily understood but the PU (pay up I think) has me confused. For example, a 20 year old female has a cash value of $18,000 at age 65 with her yearly payments at about $30.34 per month with a death benifit of $50,000. The pu is about $44,000 at age 65. What does that mean? Does it mean at 65 one would pay $44,000 to pay up policy and no longer need to make monthly payments? Doesn’t make sense on a $50,000 policy.

    Your input would be appreciated.

  46. Just some food for thought. I’ve never seen a fair comparison of whole life versus term insurance. To make it a truly fair comparison please do the following: provide the monthly premium for a healthy 30 year old male 100k 70 year term policy. Yes, that would make the insured 100 years old. Now we have a fair comparison between term and whole life. And yes boys and girls there are term policies that cover you to age 100. Second thing: do not use indexed stock mutual funds when comparing bits, it’s not an apples to apples comparison when compared to whole life. There is more risk in
    investing in stock funds versus a whole life. If you do the what I’ve asked in the above and run the illustrations out to age 100 whole life looks good compared to btid. Again nobody does this type of comparison which just blows my mind. Let’s compare apples to apples, not apples to unicorns.

    • Robb Cooper says:

      Interesting thoughts Mike. There’s a few major flaws in your reasoning however:
      1) The whole purpose of buying term and investing the difference is so that you don’t have to carry insurance until age 100. After all, if you have enough in savings to last you the rest of your life and leave a legacy for your family, why in the world would you need life insurance.
      2) Why would you compare $100K coverage? Most 30 year old men who are married need at least $500K of coverage, or there’s not much point in having Life Insurance. Go ahead and run $500k of Whole Life Insurance, and watch most people fall over from sticker shock! Term Insurance is the ONLY insurance that makes having the proper amount of insurance affordable for most people, and when you take a look at why people get life insurance to begin with, having the proper amount of coverage should be the FOREMOST thing on the mind of both the consumer, and the agent. Any agent who would sell a client Whole Life, and leave the client woefully underinsured is obviously doing what is best for himself, and not the client.
      3) Even if you accept the challenge of running the investments within Whole Life vs. bonds or other guaranteed investments, investments outside of Whole Life will still kill investments within every single time. Why? Because it’s not the Mutual Funds that are the “Unicorns” as you so inaccurately described it, but the investments inside of Whole-Life. Why? BECAUSE THE FAMILY WILL NEVER SEE THE INVESTMENT WITHIN THE WHOLE LIFE POLICY. If the beneficiary dies, the insurance company keeps the cash value. If the beneficiary lives to the maturity date, the Cash Value replaces the insurance. This is why the FTC published a report way back in 1979 that said that cash-value insurance is the worst rip-off ever sold to the American public, because much like the fabled Unicorn, it is very rarely ever seen.

      At this point, a person would be better of “investing the difference” under their pillow and gaining no interest, rather than wasting money on a product that promises you two things, but under-delivers on both.

  47. citishark says:

    7-17-12 Another interesting article came out at http://finance.yahoo.com/news/4-life-insurance-policies-never-180314056.html This is what you read about this “wonderful tool”:
    “4. Whole life/universal life. Life insurance is a tool, not an investment. With whole life/universal life insurance, you will pay a higher premium with the promise that the company will take those extra dollars and invest them for you. The problem is that this type of insurance is very expensive. The investments don’t grow because the expenses eat up your interest.”

  48. I bumped into this article a couple of days ago and since it points to several of the issues discussed in this blog here it is for others to read too. It

    The article points out: “Universal policies became attractive because they offered a higher rate of return (the dividend) on the savings component than one could get from old-fashioned whole life. The trade-off was that, unlike old-fashioned whole life, the effective premiums for the universal policy death benefit rise as the policyholder ages.

    The insurance companies set a minimum premium payment based on a policyholder’s age at the time, and then used prevailing returns on stocks and bonds to argue that there would be enough profit on investments to cover both the rising premiums and the guaranteed dividend on the cash value. In theory, the stock market would pay the added premium costs and the dividends. Millions bought universal life policies on the basis of those projections.

    But most skipped the fine print, signed the papers, and squirreled them away in their safe deposit boxes where they’ve been for decades. Hidden in those policies was this potential time bomb: if the projected investment returns fail to materialize, the insurance company can make up the difference by reducing the cash value—taking money out of your cash value savings account—right down to zero, if necessary. And when that’s exhausted, they can require the policyholder to make up the difference in the death benefit premiums, or risk the policy expiring worthless.”

    And I insist in my questions: Who are the winners here? Who are the losers??

    • Citi,

      Nice to hear from you again. I see non-guaranteed UL policies ALL THE TIME and they all look terrible. Notwithstanding, there is a difference between Guaranteed UL and Non-Guaranteed ULs. The former acts almost as a term for life product (rather than stopping at 80 like most products). While the latter is at the heart of the article.

      All that being said, I found it interesting that you would post the article since the author almost hints at the fact that she wishes he just sold whole life to his clients…
      “In contrast, mutual whole life has ancient roots, enduring the millennia because it’s a simple and safe way to grow a nest egg while providing for one’s heirs. The practice of pooling resources this way dates as early as Roman times when people formed burial clubs to pay funeral and living expenses for member families. The earliest mutual life insurance companies in the U.S. date to the 1700s, formed by church groups to benefit their congregants in time of need.

      By the mid-twentieth century, the mutual insurance industry had become the Rock of Gibraltar in the financial lives of millions of Americans. Mutual insurance companies invested their members’ premiums so conservatively that the industry survived the Great Depression intact. Those old-fashioned values have persisted and that’s why most mutual insurance companies came through the recent Great Recession with their blue-chip ratings unsullied while publicly-owned stock companies had to be bailed out to avoid bankruptcy.”

      • citishark says:

        (All that being said, I found it interesting that you would post the article since the author almost hints at the fact that she wishes he just sold whole life to his clients…)
        Very perspicacious in your comment Evan, since I consider WL a close relative of ULs with deletereous financial consequences for (generally uninformed) customers that are sold those policies. And the reason for me to do it is not to give a pass to WL at all. I found quite appealing to use the article written by a “solid member” of Cash Value side of the industry to illustrate some of the points that are vehemently denied by majority of insurance agents. I am refering to the description in the paragraph that starts: “But most skipped the fine print, signed the papers, and squirreled them away in their safe deposit boxes where they’ve been for decades….” Amazing, coming from the author of the article!

        BTW: the author wrote that part almost verbatim from the report from US Senate in 1979 scolding the insurance industry and companies about this practices.

        • “since I consider WL a close relative of ULs with deletereous financial consequences for (generally uninformed) customers that are sold those policies”

          Non-Guaranteed UL and WL are not really relatives beyond the fact that they cost more with regards to whole dollars than Term. Whole Life you are investing in the companies general account and once the contract is issued the company has growth minimums for BOTH CSV and Death Benefit that must be met after expenses and mortality regardless of how the market does (the minimums are nice in terms of today’s interest rates but not amazing).

          Non-Guaranteed UL can cash unless there is a rider on it that says if you keep paying $X then your death benefit will be there. That rider is not always there though. In a VUL contract you have a “separate” account.

          Hope that explains the products a bit. For more info check out a major mutual insurance company’s website. Some of the companies have been around for 150+ Years

          • A NOTE OF CAUTION: be careful what you call investment in an insurance product! As you well know, WL is not an investment, furthermore, it is illegal (for licensed people) to even call it/suggest, write, etc, it is an investment. That’s why no insurance company describe it as such in ANY of their contracts. (Some agents tell their clients otherwise to make the sale. I know 4 that have lost their licenses and business doing that. ) Consequently when people buy WL they are NOT investing in anything, including the “general accounts” insurance companies have.

  49. Joe Richard says:

    Thanks for the great insight Glen! You Rock:-)

  50. insurance lifes says:

    great,but this is a suggest important to many insurance use.
    thank you

  51. In my opinion Life insurance is not beneficial. Its just some scam from the companies that sell them. They will always try to find a way so that they dont have to pay. I do understand that individuals want a security for their family when they pass away but I wonder whether its really worth it.

    • 11-13-12 Michael, you started with a wrong assertion:
      -“LI is not beneficial”: LI IS very beneficial!! First for the insurance companies and agents that sell it. But second to the consumers that right the right amount and coverage to protect their families. But then factor in your second concept which is true:
      _ “It’s just some scam”: The way insurance has been, it is and will continue to be sold in America (and the entire world!) is a complete and unmitigated (legal) SCAM! that , as you say, only benefits the companies and agents (trained and) working for them. And this is when the brown stuff hit the fan! ALL what Ins Co do in ‘designing’, “marketing”, selling insurance policies/programs and even paying some claims is nothing but intentional and concious confusing and deceiving a generally uninformed customer. For the deal to work they ALL appeal to your emotions and well being and do not give a dime (0r should I say nickel!) about educating you about the business you are going to close and worse: it’s consequences. Have you noticed the “zingers” (slogans) they use to ‘make you proud’ of getting one or other company?? “Like a good neighbor…..” “The rock!” “The company you keep!”, “You’re in ‘good hands'”, “Nationwide are in your side”, “We’ll give you an edge”, “A business of caring”, you can’t predict, you can prepare”, “the quiet company”, dumb ones like “Who we are” (boy ,if you do not know, why should people buy from you? DUH!), “Have you met life today?” ( no dummie: I’m dead!!)…even the stupid “We are insurance, pa,pa,ra, pa…….”!!! Wonder about; who are the losers??

      Of course, for this to work as it has been working in past 130 yrs, advertising and (their)image are critical. Hence why they go to extremes to tailor a good one in front of you.

      MY advise to all policy holders? READ YOUR POLICIES 7 OR MORE TIMES and be specially carefull to really understand -not imagine the meaning!- of all the confusing writing the ins companies drop in their policies. They and their business thrive in very few people doing that. I’ll invite all readers to become members of such selected group! Your (family dependends!) financial wellbeing depends on it!

  52. ben-jamin says:

    I came across this discussion while trying to decide if I should end my permanent/whole life policy. I currently 36 years old, have had a 20 yr term policy ((1.5 mil death benefit) for relatively little money per month, and a smaller permanent policy that is 1/3 the death benefit (500k). Since it’s been over 3 years, if I end my whole life policy I can get all the money I’ve put in plus some interest. I could have a nice chunk of cash that is tax free, decrease my bills by quite a bit, and buy an additional 30 yr term policy to get me to 66 yrs old to protect my family in the event of death (while still saving money each month moving forward). Does this seem like a smart decision? I’d love some input on this confusing topic! I can see benefits to the whole life policies…that a nest egg is growing while providing death benefit, but it’s just so darn expensive each month. Thanks ahead of time.

    • citishark says:

      1-23-14 Benjamin:
      this is what I understand you are trying to do.
      1)GEt $1.5 million insurance coverage for you to replace your income and protect your family in case you die, correct?
      2) you are 36 y.o and want coverage for 30 more years
      3) you have 20 yrs term for $1.5mill and a WL policy for $500k.
      You ask what to do to achieve your goals…right?
      Go with the same company/agent that sold you TERM ask them to quote LEVEL TERM 30 yrs. Quote $1.5 and $2 million coverage for you. (He probably offers you to increase policy you already have to $2 Mil and 30yrs, wich is ok) See your benefits and your cost and compare them with your current cost of having the $2 M coverage you currently havewith Term and WL.

      By doing that you’ll be amazed how wise you are making decisions about your money, even more than the expert “insurance expert” representing a “solid company in business for zillions of years”.. I know the next question coming from you after you see the numbers quoted:”what do I do with the WLpolicy?”…right?

      HEre is the best way: once you have the new policy IN FORCE, cancel the WL,and get ready for a BIG surprise. First the BAD news: You expect that (after 3 yrs of having WL policy) the”return all the money I put plus some interest”. SHOCKING: You are delirious or someone (only you know who) lied to you big time. You do not get premiums paid back. Your contract probably shows you what you get: most WL for the first 3-4 yrs you have $0 in your “cash value”!! Quite a “nest egg”…huh??
      Now the GOOD news:
      a) you’ll see clearly the huge monthly savings you get in your expenses. make a good use of it!! b) since you will need a nest egg, use at least 50% – 60% of those monthly savings and invest them in good quality mutual funds (advise: look for investment professionals, avoid insurance agents in doing this). You will be amazed what that previously wasted money can do for you when you make this decision to invest.
      c) With those savings, FIRST:Open (if you still do not have it) and max out 2 ROTH IRAs (one for you and one for your wife:: you can invest up to $5,500/yr for each one of you=$11,000/ys) SECOND: if any money is left after that, open an emergency fund, (by now most of the money you saved from WL policy should be invested. STUDY AND BECOME A MASTER ABOUT THE ROTH IRA!!
      (You’ll put yourself (and your family) at a level you never dreamed about, to the point that you will be the last ‘non-wealthy’ person in your family tree!!)

      • Thanks citishark, I appreciate the response and opinion. I looked at my policy last night….I should’ve done some closer research before posting, though I was in the initial phase of that decision process and the policy was at home. Nobody lied to me (as some clearly believe there is value in WL policy). But you’re right: if I were to withdraw now, I’d only get about 1/9th of the money back….the break even mark is 10 years. From that point forward, the guaranteed money increases at annual rate of about 4%….so each year I keep the policy current, my return continues to grow at 4% tax free (that’s my understanding)…..while if I die, the death benefit is 500k. So at this point, I don’t want to pull out to take that loss. I think I’ll continue on the current trajectory, and in another 7 years, I can reassess. The 2 mil in coverage that I have now should be ok and I can afford the WL policy, and still do the other things you mentioned (though I don’t believe I qualify for Roth — just traditional IRA). Hopefully someone agrees that there is some value in this strategy of having both term and WL policy, and that I would be foolish to accept such a big loss by ending the WL policy now after just 3 years! Anyways, thanks again.

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