The problem with blended whole life insurance

by David Lewis

There’s a right way and a wrong way to own a blended whole life policy.

But, before I get into that, story time.

A long time ago, in a galaxy far, far away, I wrote about how anyone could save 50% (or more) or their take home pay. Part of the secret is in how you set up your budget (or rather, how you ditch your budget and use cash flow planning). But part of it is how you buy and set up the financial products you use in your life…from bank accounts to life insurance and even investments.

It’s not so much what you buy though as much as it is how you use those things. Most people work way too hard. You only need to start saving between 10% and 15% to get things going. Anymore than that is like going on a crash diet (unless you’re already out of debt, in which case it might make sense to save more). Things will seem good at first, and then it will unravel and you’ll be in a worse position than before.

There are getting to be more and more promoters of whole life insurance, for example. They tell you to plow everything into life insurance, and that all you need to do is buy it and something magical will happen. I could do that. I could sell you on that idea…make it magical. Make it seem special. Use really hype-y sales copy. Truth is, some of these people are very good marketers. But, I know from speaking to them they don’t have the backend systems in place to manage it all for their clients.

Example: I know of a few life insurance agents really pushing the idea that you should blend whole life with term insurance and that this will allow you to “boost up” your whole life cash value. It’s true…it will. I did this with my own policy. But, there’s a huge catch. What happens is…and I learned this the hard way…what happens is…

…the term insurance cost starts to rise over time.

And, so, if the term blending isn’t done properly, then it doesn’t work out so well. When dividends aren’t enough to pay for the term insurance, you pay more for your insurance out of pocket. Also, with some of these setups, a lot of the flexibility in the policy is lost because the dividends must go toward converting that term insurance into permanent insurance.

You can’t use the dividends to pay premiums…

You can’t take dividends as cash…

You can’t do anything with those dividends but keep paying for term insurance.


Taking policy loans becomes a bit more risky…

That’s the bad news.

It’s a shame, really. Because blended whole life insurance can be a great way to own whole life insurance. But… the way some agents do it, what’s going to happen is these clients are going to buy into a great idea, execute it poorly, and then crash and burn. The concept will still be valid, but they won’t believe it anymore because they were missing one crucial piece of the puzzle. These term riders that are added to these blended whole life policies should be convertible to whole life insurance. Instead of making the dividend pay for the cost of annually-renewable term, the term itself should automatically convert to whole life insurance with each premium payment. Not only does this reduce the risk of the thing blowing up, it makes everything else about the policy less risky over time. And, you should see a healthy bump in dividend payments as the term is converted to whole life. Much better than a kick in the pants and a bigger bill from the insurance company.

Anyway, if you want me to guide you through the ins and outs of life insurance and how to correctly set up a blended whole life policy, then sign up to my email list and let’s rock and roll. You can also read The Perfect Policy™ to get an idea of how a good whole life policy should function and perform.

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About David

David Lewis, AKA The Rogue Agent, has been a life insurance agent since 2004, and has worked with some of the oldest and most respected mutual life insurance companies in the U.S. during that time. To learn more about him and his business, go here.