An ignoramus’s understanding of life insurance

by David Lewis

Besides, children should have something to do, and the rattle of Archytas, which people give to their children in order to amuse them and prevent them from breaking anything in the house, was a capital invention, for a young thing cannot be quiet. The rattle is a toy suited for the infant mind, and education is a rattle or toy for children of a larger growth.

— Aristotle

Nothing new under the sun, as they say. 

Recently I was reading a critic’s take on whole life insurance. The main thrust of the argument — and really every argument — against whole life insurance is that it’s an inherently bad product. 

The specific details of why it’s a bad product always shift and change and when you knock one down, 5 more criticisms appear. 

It’s like a hydra. 

First it’s that agent commissions are too high, then it’s the returns on cash value are too low. Then it’s the fact that you have to borrow your own money out of the policy. Then it’s something about whole life lapse rates being super high. 

Even if you are smart enough to explain calmly and rationally that none of what the critics argue is true or that it’s a bit more nuanced and contextual than what they suggest, it doesn’t matter. There are always 20 more reasons why no one should ever buy whole life insurance. In fact, even when I wrote this article, explaining whole life insurance in excruciating detail and refuting critics, I still received a maelstrom of non-sequiturs via email. Logic. Reason. These things don’t matter in the face of The Narrative™.

You try to explain by way of analogy, the critic takes your statement literally. You speak literally, the critic talks in metaphors. It’s a game you can’t win, and an argument that the critic doesn’t intend to ever make intelligible. The goal is simply to spread disinformation… usually for pageviews, but sometimes for some other unstated agenda. Sometimes, there is no agenda (as is the case with online trolls).

Usually, the stated premise of why whole life insurance is bad revolves around some type of dishonest or unethical motive on the part of insurance agents. But agents don’t built and price the products. Actuaries do. Actuaries are professional mathematicians, not salesmen.

When you shuck it down to the cob, the unstated premise of all these arguments is that whole life, as such, is bad. 

Now… the implications of a bad product are bad engineers…. that the professional mathematicians (actuaries) who design these products are incompetent or dishonest or have made a series of mistakes over the last 200 years in product design and development and have never been able to fix it (and yet somehow are paid for the privilege).

In my mind, this is just plain weird. 

The reality is whole life insurance is actuarially sound, has been reviewed by independent 3rd parties in the industry and also by the FTC (if that matters). There is no credible evidence that these products are bad for consumers. In fact, it’s the opposite, with the caveat that “beneficial” is contextual. 

And that’s here agents come in. Agents assess how suitable whole life is for an individual and then are supposed to design an insurance plan around the client’s needs. 

That can be hit or miss since doing this is a hard job and agents don’t always get it right. But again, the source of whole life’s benefits are not independent actuaries who review it as a product class, or agents who customize product designs and sell it, but rather the financial engineers (actuaries) who build it. So as a product, there’s nothing wrong with it.

OK, rant over. 

If you doubt the legitimacy of a 200 year old product (200 years in America anyway), or you’re unconvinced by my arguments, or you’re convinced the critics are correct, then close ye olde browser. 

If, on the other hand, you want to know more, then consider joining my email list below.

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About David

David Lewis is a licensed life insurance agent, and has worked in the life insurance industry since 2004. During that time, he has worked with some of the oldest and most respected mutual life insurance companies in the U.S. To learn more about him and his business, go here.