• Find the money to start saving, insuring, and planning for your future.

    The hardest part is getting started. Get professional budgeting and money management help. Weed out unnecessary insurance (and other) expenses. Save money on your taxes and get more back in your paycheck (or at the end of the year). Pay off your mortgage (and other debts) early while simultaneously saving money for your future.

  • Save money without making personal sacrifices.

    Everyone tells you that saving money means you must make personal sacrifices. Erroneous! Learn how to make "smart priorities", and avoid making sacrifices through intelligent budgeting and money management principles.

  • Build a remarkable savings and insurance plan that's guaranteed to be there for you when you need it.

    Whole life insurance is not a speculative investment that can be lost. Instead, it guarantees your future savings and provides a tax-free death benefit for your heirs if you fail to spend that savings before you die. Whole life insurance cash values are generally not taxable and you can use this savings before you retire, for any reason, and still use it to supplement your retirement income later.

  • Make better financial decisions that will impact your life now and later.

    Should you put that tax refund towards a down payment on a house or put that money to a retirement plan? Should you move to get a new job or stay put and downsize? Does it make more sense to buy a new car or fix your old one? The answers to these questions seem difficult, but are simple. When you become a client, you'll learn the 6-step process necessary to make the right choice, every single time.

  • Give more money to your spouse or a favorite charity when you die.

    Nobody wants to think about their own death, but it's a fact of life. That doesn't mean you are completely powerless. Once you become a client, you'll have the opportunity — and be empowered — to leave a lasting legacy of your choosing.

  • Build a financial plan that works... even when you can't.

    What if your last paycheck was... your last paycheck? Get a disability insurance plan designed specifically for your needs, which can fully replace your income if you become disabled. It can even provide you with a lump sum payment at retirement to compensate you for your lost productivity and ability to save.

  • Get paid a guaranteed income forever, and then... give that income to your heirs.

    Get a custom annuity plan that can help you grow your savings, and guarantee you an income you cannot outlive. This income can be adjusted for inflation or paid as a level payment amount for the rest of your life no matter how long you live.

  • Immediately cut your borrowing and interest expenses by 25% (or more).

    Most people use banks, credit unions, or (gasp!) credit cards to make major purchases. Learn how to use whole life insurance to not only reduce your borrowing costs, but simultaneously add money to your savings.

  • Protect your retirement savings from total annihilation

    Independent studies show that allocating a portion of your savings to whole life insurance can protect your retirement savings. Learn how to do it the right way and you'll always sleep well at night.

  • Save money for your kid's future education without sacrificing your own retirement.

    You can save money for your children without sacrificing your own retirement savings. Smart parents have been doing this for decades. Now, you can too.

  • Protect yourself from a chronic or terminal illness

    Growing old is a natural part of life. But, many seniors give up their independence unnecessarily. When you become a client, you'll have the means to protect yourself and pay for expenses associated with long-term care or a terminal illness.

Schedule Your Online Meeting With Me

I’ve been designing customized savings and insurance plans for individuals, families, and small businesses since 2004, and I personally own the same types of plans I sell to my clients. With that said, not everyone benefits from (or qualifies for) these types of insurance plans. In other words, some folks are uninsurable.

But, let's not get ahead of ourselves here. If you’d like to explore the issue further, and see if a custom insurance plan is right for you, then click "schedule my meeting" below, and schedule your free 30-minute, no obligation, online meeting with me. You can talk to me "face to face" through an interactive video call or we can kick it "old school" and just gab on the phone for 30 minutes. It's up to you. Put away your wallet. I'm not going to ask you for any money, but... I will ask you a bit about your finances.

Already Have Insurance? Want a Second Opinion?

In many cases, I can improve an existing savings and insurance plan. In other cases, the plan needs to be rebuilt from the ground up. Either way, I'll tell you exactly what needs to happen in order for you to achieve whatever long-term goals you already have.

What are you waiting for?

Schedule My Meeting
  • I live in a small town in Ohio. I had read and studied about the benefits of permanent insurance, but I was not able to find a local insurance agent who was intimately familiar with many of the concepts that I had read about. Specifically, I was interested in using my cash value to provide one stream of retirement income, while maintaining my death benefit. An even larger goal was structuring a life insurance portfolio for estate planning purposes. My goal is to transfer the death benefit proceeds into a small private family foundation that I set up a few years ago. Also, I was not able to find someone locally that was familiar with the concept of “being your own bank”. I understand that David is not overly giddy about this aspect of WL cash value use, but he understands the very fine details and mechanics of how this “works” and utilizes this approach when appropriate for his clients. I purchased a large WL policy from David and found him to be extremely knowledgeable and easy to work with. He was available by email and via phone. He clearly has a very deep understanding of life insurance and worked to tailor a policy that was most beneficial for me. One thing that I did notice about the policy I purchased through David is the rather quick initial growth in cash value. My other WL policies took many more years to achieve a point where cash value exceeded cash payments. I like that! Working with David has been easy and enjoyable. He is obviously intelligent, enjoys his work, and I believe truly strives not to just sell policies, but to actually help individuals achieve their financial goals. He does this efficiently and with a personal touch of high quality service. I was initially hesitant to work with an agent online, or with someone I had not personally met. However, after working with David, I have been extremely pleased. I never felt pressured to purchase a policy, nor to do anything that I felt uneasy about. I truly believe that David has used his knowledge and skills to help me and my family achieve our financial and estate planning goals. I heartily give him my highest recommendation.
    Robert Neidich, MD, CPE
  • Biggest problem I was having was finding somewhere to put my savings where it would be as safe from thieving bureaucrats as possible while still realizing some kind of growth. I’m pissed. Still am, but less so than before. Life insurance as it exists today is undoubtedly a pale imitation of what it could be in a free market, but in terms of safety (and other utility), it’s the best option I’ve discovered so far. There’s still a lot I need to understand about how life insurance works as a long-term savings vehicle, but for now I’m at least satisfied that some of my money is a little safer from theft and wildly arbitrary taxation.
    Tim · Freelance Writer
  • Admittedly, talking about my retirement savings (or lack thereof) has been a subject I’ve avoided. I knew i needed to do something but I did not want to put more in my 401(k), Roth IRA, or buy gold. I started looking for alternatives that were a bit out of the box, which is scary at almost 60 years. I got in touch with you and began to learn about whole life insurance. It took me awhile. I was skeptical about any idea that had the word “insurance” attached to it. I had been wooed in the past by skilled insurance salesmen but had avoided their grasp. But, you didn’t push the product. Your approach was to understand what I understood, what my fears were, what my plan was for the future (even though I didn’t have one) and proceed from there. We had several conversations and exchanged plenty of emails. You were very patient and explained the same concepts to me several times. You were persistent yet encouraging as we evaluated my finances, even though I resisted. You addressed every doubt and every hesitation until I was satisfied on my own account. I never felt coerced or pressured. Once the concept of whole life started to click, I was very sure this was the direction I wanted to go. You showed me how to get there and tailored my policy to meet my particular needs and comfort level- well, we pushed that a bit, but I’m glad we did. My only question is, where were you 30 years ago to take me down this road?
    Shari · Grant Writer
  • I appreciate that you listened to what I wanted to achieve and what I’m worried about, rather than telling me what you think should be important to me. I’m impressed you could look at my rather meager assets and income and devise solutions that have given me more financial peace of mind than I ever got having 401Ks. Your meticulous attention to detail assures me that I know exactly what to expect. You’ve given me a different perspective about making my money work for me. I actually feel I have control.
    Madeline · Legal Assistant
  • My financial planning led me to explore whole life insurance, which then led to meetings with several brokers. But it became evident that many brokers were not familiar with any companies besides a couple of their favorites. It also became evident that many brokers were more interested in “closing” me than in optimizing my policy. It was frustrating. I had to remind myself that the money I was considering investing in my policy represented years of my own labor. I deserved the time and attention required to really optimize it. You were willing to spend the significant amount of time required to consider numerous types of policies and companies, as well as go back-and-forth with me during revisions to ensure I would receive a great return on my investment. After speaking with several brokers, I decided to work with you because you were the most informed across numerous life insurance companies and the nuances of their policies. Life insurance is now a significant part of my estate, and I look forward to working with you for many years to come.
    Keith · Public Relations
Stop Gambling With Your Future. Start Building Real Financial Security, Right Now

Frequently Asked Questions

You have questions? I have answers. These questions have been submitted to me over the last 15 years via email, social media, over the telephone... even by USPS "snail mail". I hope they help you in some way.

What do you charge for life insurance advice or planning?

Nada.

You and I talk for about 15 minutes on the phone to see if we're a good "fit" for each other. Then, I run an illustration and build you one of my homegrown life insurance policies. If you like, you buy. If you don't, you move on to greener pastures.

Now, Just because you do not pay me directly doesn't mean I don't get paid. I do. I get paid a commission from the insurance company when I sell a policy. Because of that, I aggressively weed out unserious people. 

 

Do you offer a guarantee on any of your services?

Negative.

My planning services depend entirely on you and your ability to follow through. If you have any doubts about doing business with me, or in your ability to follow directions, my suggestion is to "x" out this page and move on to greener pastures.

With that being said... every life insurance and annuity plan I design does come with a guarantee. Your savings and income are guaranteed for as long as you keep your insurance policy. Those guarantees are nothing to sneeze at — they're backed by some of the oldest, and most financially stable, life insurance companies in America. These companies have survived the Civil War, The Great Depression, both world wars, every recession in our nation's history, the 9/11 terrorist attacks, and the financial crisis of 2008... and they never failed to pay a claim and kept paying dividends (for whole life policies) the entire time. They never missed a beat.

 

Do you offer investment advice?

Negatory.

I am not licensed to offer investment advice, so do not ask me about such and such investment. Nothing I say in any of my emails, on my website, or anywhere else is, or should be considered, investment, legal, or tax advice. I do strictly insurance-based financial planning.

This means: cash flow planning using budgeting and money management calculators and apps designed by yours truly, and customized life insurance, disability, and annuity plans.

 

How much life insurance do I need?

Enough to fully insure your maximum productive potential (aka your maximum lifetime earnings or income).

Incidentally, if you buy all your life insurance as whole life insurance (or buy term life and save enough to replace the full death benefit amount by the time you retire), you will automagically save enough money to be financially secure in your old age.

But you definitely want enough life insurance to fully insure your income. 

Why?

Look at it this way: Let’s say you purchased a $450,000 home because you wanted a swimming pool in the back yard and this home had one. But, you only *needed* a $300,000 home (without the pool or other amenities) to fulfill your “basic living needs” of a living room, 3 bedrooms, a bathroom, a kitchen, and so on. 

Would you insure your $450,000 home for $300,000? 

No way. 

It’s the same with your life. 

The amount of insurance, or death benefit, you should buy depends on your Human Life Value, which is essentially your annual income multiplied by the number of years until you retire or your life expectancy (depending on how long you plan to work). 

Insurance companies will then take that number and adjust it up or down depending on your current assets and liabilities. 

But, that is the most basic way to figure out how much insurance you should buy.

Most people will need to purchase a combination of convertible term insurance and whole life to meet that need.

 

What is whole life insurance (the short version)?

So, here are the basics: all insurance policies are, conceptually, a highly specialized form of savings. They are actually a derivative of personal savings, designed to manage various financial risks for you.

Here’s how it works:

With life insurance, you pay premiums to the insurance company. They invest that money and in return give you a guaranteed death benefit, guaranteed cash value (the savings portion of the policy), and in the case of participating whole life... they also give you dividends (profits from the insurer's investing and business activities, including profits they made off selling you the policy). And... dividends are "meritorious," meaning the more insurance you buy, the more dividends you're entitled to.

The reason they're willing to do this in a participating whole life policy is because the policy contract gives you ownership in the company, called a "mutuality." 

The policy also gives you guaranteed loan access... you may borrow against the cash value of your policy without a credit check and set your own repayment terms, which includes not paying back the loan at all (though interest accrues on the loan balance). You can also partially or fully surrender the policy for its cash value. You may take the cash value as a lump sum, or annuitize it, turning it into a guaranteed retirement income for the rest of your life, regardless of how long you live. You may even be able to pass that income along to your heirs after you die.

Assuming you keep your insurance policy in force (and not annuitize it), the insurer pays the death benefit when you die, just as with any other life insurance policy. If there are any loans against the policy, those are paid off using the death benefit and the remainder is given to your heirs.

 

How is the insurance company making all this money? Why can't I just invest in whatever they invest in and save myself the cost of insurance?

The reason you're not able to just do it yourself is partially because of position sizing and partially investment opportunities. You don't have $400 billion to invest and you also don't have access to the types of investments that an insurer does. 

And if you did, you would be an insurer and collect premium and run the company. 

For example, an insurance company makes profits from selling term insurance, collecting mutual fund fees, collecting commercial real estate rents, investing in certain stock, bonds, commodities, and so on. They also collect interest on policy loans from policyholders 

Because they've been doing this for 100+ years, they have a lot of experience with how all these investments work. They also have the benefit of being entrenched in their investment positions. 

For example, their yield on cost on some of these stock holdings is so high, you would have had to have been born maybe 70 to 100 years ago to really compete with them today. 

Regarding policy loans... when you borrow against your whole life insurance policy, the insurer gives you a loan out of its reserves and then secures the loan with your death benefit/cash value. 

The interest you pay on that loan goes to the insurer. And that becomes one profit source for the insurance company, which is then redistributed as dividends. Insurers pay those dividends on a meritorious basis. The more insurance you own with them, the more dividend you're entitled to. 

Rather than fight the insurer, it often makes more sense to give them as much money as you can because this (ultimately) means more money in your pocket. 

 

Is Whole Life Insurance Expensive?

In one sense, yes. In another sense, no.

The sense in which it is expensive is that premiums for whole life insurance tend to be very high. The sense in which it is not expensive is that almost all whole life sold today is participating or dividend-paying whole life insurance, and those dividends offset the high premiums, creating a low net cost of insurance to the policyholder. This creates a rather unique situation for insurance buyers that doesn’t exist anywhere else in any other market.

If you search around on the Internet, you will find lots and lots of negative reviews about whole life insurance.

All the experts say:

  1. It's expensive.
  2. Life insurance agents make big commissions on whole life, which is why they like selling it.
  3. The returns are crappy — just 2% guaranteed over your lifetime.

You know what? In one sense, the critics are right. 

The insurer is taking ALL the risk. You're paying for safety, and safety is expensive. And insurers do charge a lot of money for this sort of protection. And, for some, it's worth every penny. The reason the guaranteed returns in whole life are so low is because... the insurer is sharing ALL its profits with you (which substantially adds to the cash value of your policy) and guaranteeing the entire cash value against loss (including all earned dividends). 

Premiums for whole life also tend to be high, but — and this is the “catch 22” — they are not higher than an equivalent term life insurance policy over the same time period. And premiums in a whole life policy are not the same thing as “cost” or “expense.”

This is uncontroversial in the insurance industry and is, in fact, known by every life insurance agent because it’s part of the pre-licensing education course required by all states before an individual can become a licensed life insurance agent. 

This is from my own exam manual:

“In essence, the level premiums collected under a permanent policy are actuarially (i .e. mathematically) equivalent to the sum of the increasing annual renewable term rates for the same insured risk and for the same period of time. Because of the time value of money (i.e., the influence of interest), the actual sum of out-of-pocket premiums paid under a permanent policy (or a term policy that extends for a number of years) will be significantly less than those paid under an ART policy, all other factors (e.g., age and policy face amount) being equal.” — Life And Health Insurance License Exam Manual, 6th Edition.

In other words, if you add up all the premiums for a whole life policy, they will equal the premiums for a 1-year annually renewable term life policy over the same time period (a person’s whole life). However, if dividends are used to offset premiums, premiums on a whole life policy are actually cheaper than an equivalent term policy. This is what is meant by “net cost” in a whole life policy. 

Level term insurance only appears cheaper because premium paying periods tend to be shorter, not because the policy is actually cheaper. Term policies tend to have payment periods of 10, 20, or 30 years, while whole life policies tend to have payment periods lasting to the insured’s age 100 or 121. In a term insurance policy, the insurer is profiting on the policy by either holding back cash reserves associated with the policy and not making them available to the insured or by breaking even on the level premium paying period while profiting at the end of the policy when it renews to a 1-year annually renewable policy and premiums increase (usually substantially so).

About those expenses in a whole life policy… you are paying for the net amount at risk (the pure insurance in the contract). But, in addition to this, by contract, and by law, mutual life insurers (which is where the overwhelming majority of whole life is purchased from) must distribute excess earnings of the company to policyholders as dividend payments because policyholders are the owners of the company. 

Mutual life insurers are also obligated to sell whole life insurance *at net cost* to their policyholders. Because policyholders are the owners of the company, mutuals are legally and contractually required to look out for the best interest of their policyholders. This issue was discussed at great length in the 1993 Valuation Actuary Symposium Proceedings ("Mutual Company Issues"), where the Chief actuary of The Guardian Life Insurance Company of America addressed this issue directly. Many mutual insurers make it a point of telling the general public that they sell whole life insurance at the lowest net cost possible, and this is because the dividend paid at the end of the year acts to reduce the out of pocket expenses paid for insurance throughout that year. 

In some ways, this issue has been grossly misunderstood. Whole life insurance has sometimes been characterized as an investment. And, because of that, investors are keen to figure out what the investment costs are, what the rate of return is, and the long-term viability of the company. And, while the return on cash value in a whole life policy is very real, from the perspective of the insurance company, the primary function of the dividend payment and the cash value of the policy is to keep insurance costs low and keep policies in force and on the books. Insurers invest premium dollars from policyholders, build up surplus funds for investment purposes, and try to obtain a sustainable return on those surplus funds with the ultimate goal being preservation of the mutuality for the benefit of its owners. It is not, in a strict sense of the word, an investment. However, the investment returns generated by most mutual life insurers do make whole life insurance an attractive “investment” from the perspective of the policyholders — the returns on cash value can be substantial and it would be silly to ignore this aspect of the policy.

Finally, term and whole life insurance are more alike than different, and the differences that do exist lie entirely in the equity value made available to policyholders through whole life but not through term insurance. There seems to be this idea that one can only buy investments OR buy whole life insurance. This is a premise that needs to be challenged. It is not either-or. The research studies that have been done on combining investing with whole life insurance tend to show a synergistic effect between insurance and investing. The question of whether or not an individual finds whole life insurance valuable or worthwhile is largely a question of that individual's risk capacity (a measure of how much risk an individual can objectively afford to take on as well as how much they must take on in order to achieve thier goals) and also their judgment of the present value of their future savings (which includes their own personal discount rate on their future investment strategy). It is not, as some have suggested, a sophomoric comparison of 2 hypothetical rates of return.

And this is the source of a lot of the controversy. Critics often compare the stock market to whole life insurance. They see hypothetical returns of 7%, 8%, 10%, 12% in stocks and compare this to the 2% guaranteed return on whole life cash values (or 4-6% return with dividends) and conclude whole life is inferior to equity investments. This is a poor way to judge insurance and misses the larger picture of the central role life insurance can play in a person’s financial plan. This case study demonstrates the synergistic effect life insurance can have on an investment plan and this case study demonstrates how life insurance can be used by itself to grow a sizable savings (even late in life). This case study demonstrates the protective effect of whole life insurance (even for single individuals with no dependents) and this case study demonstrates how whole life insurance can be used to plan for retirement.

All this is done at the lowest possible net cost, and yet… premiums for these policies also tend to be very high.

 

Does everyone benefit from owning whole life or are you proposing a particular way of using whole life insurance that sucks a bit of extra value out of it in favor of those who are willing to follow this process?

I would say yes all whole life owners are getting a good deal in the sense they are collecting the guaranteed interest plus company profits. Everyone gets the policy loan feature, etc. 

Historical returns from the better insurance companies in the industry show policy owners got a tax free annual compound return on their cash values (net of all fees/commissions) in excess of 5%-6% over the last 35-40 years. One insurance actuary, who generously disclosed his policy info on a public investing forum, showed an annual compound return of  7.76%.

If you were comparing whole life insurance to an investment in the stock market, in the way most people do, the real return of the S&P 500 over the same time period was about 10.48%. 

But you cannot invest directly in “the stock market.” You have to buy stocks or mutual funds, or something. 

Most of the time, you are hiring an investment manager to do this for you. So, subtract a 1% investment management fee (which was VERY cheap in the '80s and '90s), add the cost of term insurance at $500/yr (which is half the cost of what most people actually pay for the proper amount of coverage), and that's a return of 6.58% before taxes and between 5.67% and 7% after tax, depending on your tax bracket. 

Companies like Morningstar, Vanguard, and DALBAR have done studies on investor returns. Result? Most investors earn about 3%-5% over the long-term. Of course there are people who beat those averages and people who do worse.

But yeah, people benefited just by buying whole life and holding it. 

Now, some policyholders get more of a benefit because of this whole life strategy [the borrowing strategy some people refer to as "Infinite Banking" or "Bank on Yourself", and which I sometimes refer to as "The Wanamaker Method", named after John Wanamaker... the businessman who popularized the use of whole life insurance as a savings and used these self-financing techniques to grow his business into a $100 million empire in the late 1800s and early 1900s] ... and also because some companies are better than others (as is the case in any market/industry)... you have the Ford Pintos... which don't look so good next to the BMW 5 series... which is part of my job... to sift through companies for the best in the marketplace and then customize their contracts to squeeze the most out of them over the long term. 

 

Warren Buffet recommends investing in Vanguard's S&P 500 index fund. Are you going to claim that if I enroll in Whole life insurance at age 35 and live to be 100 years old, my estate (including the death benefit) will be worth more than if I had put all that money in the S&P 500? Show me your math.

No I’m not going to claim that. Here’s what I will say: It’s certainly possible but it depends on how you use the policy between now and then. 

Let's think about it in simple terms. 

If you accumulated $10 million or heck $100 million in savings in the stock market... and purchased whole life at age 80... which is nearing your maximum insurable age... and then died a year later, your death benefit would exceed the sum total of all your premium payments and — more importantly — the value of your previous investment, making it impossible to beat the insurer, even under the most favorable circumstances. 

This is because a whole life insurance policy's death benefit cannot, by contract and by design, be less than the total premium payments made to the policy (assuming those premiums are sufficient to pay the policy "in full" and there are no loans against the policy). 

At that point, your goal is to close the gap between the cash value and death benefit before you die.

Buffett knows this, which is why Berkshire buys whole life insurance. At his age, he is buying whole life from other people, and he is paying MORE than the cash surrender value for these policies because he believes they are a good investment. He has even stated in a shareholder meeting he regrets not buying more of these policies... because Berkshire would have been worth even more money than it is today.

He recommends people invest in the S&P 500 because he believes most people are "know nothing" investors. He is also quick to say that diversification and strategies like indexing are for people who don't know what they're doing.

While past performance is not predictive, we do know that — historically speaking — most investors who chose an "all in" investing strategy instead of buying whole life insurance did not beat the return on cash value of a strong participating whole life policy over the last 40 years. 

I discuss this in detail in my article Whole Life Insurance Critics Aren't Serious.

Is life insurance an investment? Why is it sold as an investment? 

Life insurance isn’t legally classified as an investment and insurance agents are legally prohibited from calling it one. But... it is often positioned as an investment or as a pseudo investment.

Life insurance agents sell life insurance as an “investment” or a good asset to own because they believe it’s essentially good as a product. It provides strong principal protection, a guaranteed rate of return, and a stable dividend payment (for participating policies) that will grow the policy’s cash values. The contract protects the policyholder’s money. Insurance agents come from the perspective that insurance is protective and that people are generally risk averse and want to protect the savings they worked hard to accumulate. At the same time, policyholders want a good return on their money and insurance agents believe whole life provides that return to policyholders. 

This view is not arbitrary or without precedent. It only seems odd today that life insurance is sold as an investment. But, at one time, this was normal.

The idea of life insurance as an investment originated from Dr. Solomon Huebner, who was the very first professor of insurance at the Wharton School in PA. He also wrote the very first textbooks on life insurance, the stock and bond markets, and other financial markets. He developed the concept of Human Life Value (that human life can be quantitatively defined) and tied it directly to permanent (whole) life insurance. He taught what I would describe as “the selfish model” of life insurance — that life insurance had 2 beneficiaries: the ones who received the funds after death and the policyholder/insured who benefited while still alive. 

The other competing model, what I would call “the altruistic model” of life insurance argues that life insurance is primarily for “widows and orphans” and should never be an investment — that it is only (or at least primarily) for those you leave behind when you die. The focus is entirely on how other people benefit from your life insurance and not how you benefit and enrich your own life through the creation (and protection) of personal values stemming from the life insurance contract. Because of this, the altruistic model focuses heavily on the “need” for life insurance instead of the value of life insurance. A more sophisticated version of the altruistic model ties the concepts of “value” and “need” together to argue the value of life insurance lies solely or primarily in its need by others after you die. 

The selfish model ties the value of life insurance to Huebner’s concept of Human Life Value — that individuals are the source of all property values in the world by virtue of the fact that individuals are responsible for creating all property in the world... that human life can be quantified in dollars and cents based on the economic value of making the intangible, tangible. Huebner referred to “economic images of the mind” and how humans are unique in their ability to take those images and bring them into reality through effort, initiative, ingenuity, creativity, personal judgment, and strength of character. This productive potential (and the actualization of that potential), Huebner argued, was insurable against deterioration and destruction — against illness, loss of productive ability, and death. That human economic potential and its actualization is the primary value being insured and it’s insured for the benefit of that individual, not for the benefit of others. That human beings are ends in themselves, working for their own selfish benefit and personal enjoyment and that they are not a means to other people’s ends.

So, from the perspective of the altruistic model, it never makes sense as an investment. But from Huebner’s model, it makes perfect sense. 

Whole life insurance is a practical implementation of Huebner’s inherently selfish Human Life Value model where cash values grow at a stable, sustainable, rate of return, and where dividends are added to that guaranteed interest rate to provide stable income for the policyholder (which can be taken as cash or added to the policy’s death benefit/cash value). Meanwhile, the principal is completely protected against loss. 

This model is completely consistent with Benjamin Graham’s original definition of an investment: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

… although Graham may never have considered insurance as an “investment”, it was well-understood by Huebner that whole life insurance provided principal protection and a “satisfactory return” within the context of the conditions required to offer a guarantee of principal and at the same time provide guaranteed interest plus non-guaranteed dividends. The guaranteed principal and guaranteed interest rate on whole life provide the stability. Dividends fluctuate each year but, once paid and reinvested into the policy, become part of the guaranteed cash value. In that sense, dividend payments are not guaranteed. But, once paid, they enhance the guarantees in the policy.

The return on whole life insurance is dictated, in large part, by the requirement of principal protection, which satisfies the definition of “investment” as opposed to “speculation”. 

Today’s insurance agents, whether they realize it or not, are selling stable assets. The SEC prohibits the use of the term “investment” to describe whole life insurance, but that does not change the nature of what it is.

 

Don't You Earn Commissions On The Sale Of Whole Life?

Yes siree bob.

When I design a policy, that base insurance coverage usually accounts for between 40% and 60% of your total premium, depending on your age, health, and a few other factors (if you buy a policy from me). My commission is typically between 25% and 35% of the first year’s total premium paid for a high cash value whole life policy. 

For example, every $100 in premium paid in the first year would net up to $35 in total commission paid to the agent (me). In year 2+, the commission is substantially less. For a death benefit focused policy, my commission is 70% to 90% of the first-year’s premium (with small renewal commissions between 2% and 5% in years 2+. For example, every $100 in premium paid in the first year would net up to $90 in total commission paid to the agent (me). 

Is that a huge commission? I'll leave that for you to decide. If you want to see more specific example of commission payments on a whole life policy, and how they compare to fees and commissions charged for investments (i.e. mutual funds), please refer to my article in Think Advisor.

 

Doesn't Whole Life Insurance Have Crappy Returns?

Yes and no.

This depends a lot on when you buy your policy (your age at purchase), how the policy is designed (high cash value vs low cash value), and many other factors. 

The guaranteed return on a typical whole life policy is between 1% and 3% at most ages. These are the minimums of the policy. Dividends can, and often do, add a substantial amount to the guaranteed cash value, increasing its net return.

I cover the issue of rate of return on whole life in great detail in my article in ThinkAdvisor, Whole Life Insurance Critics Aren't Serious.

 

It’s whole life insurance only for extremely risk averse people? Seems to me the whole rationale for a whole life insurance is to avoid risk. If one is afraid to judge risk on one’s own, is afraid to act, then whole life insurance might make sense. Can’t a person do much better with term and tax-deferred investing?

Regarding risk avoidance and aversion: Buying insurance isn’t about avoiding or averting risk. Avoiding risk would be something like... not investing any money or avoiding certain activities which are inherently risky. Insurance is about transferring risk and creating certainty about future monies where there was previously an unknown. 

Regardless of whether one correctly judges the riskiness of one’s life, that life is nonetheless unpredictable. You have no guarantee of achieving your goals in life. 

Insurance, in general, and life insurance in particular, gives you a guarantee in exchange for a premium. You are not avoiding judging risk by buying insurance. In fact, it’s the opposite. You are judging the risks ahead of you and planning accordingly based on your known skill and ability to handle such risk. You are taking into account your risk capacity (a measure of how much risk you can *objectively* afford to take on by yourself) and using insurance to cover risks you cannot afford to take and to protect money you cannot afford to lose. Time and resources are not unlimited, which is what (partially) creates the demand for the guarantees of insurance. 

This is not about doing better or worse with term + a speculative investment. Investing and insurance are not mutually exclusive and, in fact, will not interfere with one another if done correctly. This case study is an example of how insurance and investing work synergistically. However, if whole life insurance is purchased in lieu of investing, it can still provide a competitive return. Historically, buying term and investing the difference has not produced significantly better results than simply buying whole life insurance. And, in many instances, buying whole life insurance was a better option. I cover this in detail in my ThinkAdvisor article, Whole Life Insurance Critics Aren't Serious.

 

I’ve read/heard from a popular financial guru that when you die, the insurance company steals your cash value and then pays out the death benefit, is this true?

No. This is false. 

This is covered in every life insurance agent's Life and Health Insurance course material and exam manual (my edition is the 6th Edition from 2004, but the laws and policy contract provisions concerning this issue haven't changed in over 100 years):

Cash values [of whole life insurance] belong to the policyowner. The insurance company cannot lay claim to these values. This concept is discussed in more detail in Unit 5, under Nonforfeiture Values.

Non-forfeiture provisions entitle policyholders to the cash surrender values in the policy. This is true while the insured is alive but also (because they are part of the death benefit) insurers are obligated to pay these sums to the insured’s beneficiary upon death. Non-forfeiture provisions are embedded in every whole life insurance contract, and they prevent the insurance company from taking your cash values, even when you die.

If a life insurance company did attempt to do this, they could be sued by the policyholder or the beneficiaries of the policy since they are legally and contractually required to pay the full death benefit of the policy and those cash values are the reserve that helps pay for this death benefit. If this practice was widespread, it would result in widespread class action lawsuits and the mutual insurers would be forced into liquidation. This has not happened.

 

Aren’t insurance agents motivated to sell you the worst, most expensive life insurance products because of the big commissions paid on whole life insurance?

No, they aren’t incentivized to sell you bad products. But, agents are incentivized to sell whole life insurance. I cover this issue, as well as real commission examples, in my article in ThinkAdvisor, Whole Life Insurance Critics Aren't Serious.

Despite the fact that commissions do drive whole life sales, commissions for insurance products often pale in comparison to fees and commissions paid on most investment products, like mutual funds.

First, it’s important to realize financial incentives are everywhere. They are not unique to life insurance. Let’s look at three different policies... term, whole life, and universal life. 

For each policy, let’s assume the premium is the same: $1,000. What is the commission on these policies? In nearly every case, it’s the same. Commissions range from 50% for what’s called “street level compensation” up to 130% or more for “base + overrides”. Overrides are additional commissions paid to offset marketing and other overhead expenses, but are generally included as total compensation for selling life insurance. 

In general, most life insurers pay the same commission rate for all product lines. When there is a discrepancy, it usually (but not always) favors term and universal life. 

Why, then, do people believe whole life pays insurance agents a bigger commission? Because more premium dollars flow into a whole life policy than for a guaranteed level term policy in the first year of the policy. The higher premiums on whole life are necessary to build the high, long-term, policy reserve and cash value associated with whole life. Term insurance has no cash value and thus premiums for a level premium term policy can be much lower, resulting in lower commissions paid to the agent for the same death benefit amount. 

Policyholders receive 2 things with whole life insurance — insurance and savings. They receive one thing with term insurance — insurance death benefit. Whole life is generally seen as an asset while term insurance is viewed as a commodity. Because of this, term insurance tends to be replaced more frequently than whole life (which shows up in SOA persistency reports), generating more commissions to agents who replace those policies on a semi-frequent basis. The sales argument for replacing term policies is simple: “I can get you the same coverage at a lower premium” or “You don’t need this much insurance. i can save you some money buy getting you a smaller, more appropriately-sized, policy.” 

Meanwhile, people who buy whole life — especially large whole life policies — tend to keep their policies, triggering just one large commission payment to the selling agent. They value a death benefit that increases over time and the financial security of guaranteed cash values.

 

Can’t a mutual insurance company demutualize? If that happens, doesn’t that destroy my whole life insurance policy? 

Yes, insurers can demutualize, and yes it potentially can result in the elimination of the coveted whole life dividend, but this is extremely rare (especially today). 

The remaining mutual insurance companies have witnessed the fallout of demutualization in the 1990s and are not motivated to join their ranks. 

The most public example of this was MetLife, which demutualized in 2000

Despite undergoing full demutualization, Met continued to pay a healthy dividend to its whole life policyholders. Incidentally, this is the company I started working for in 2004, and the company’s L98 whole life product was superb, with a dividend rate that rivaled the major mutual companies. Today, however, MetLife doesn’t sell whole life insurance (or any individual life insurance) at all.

But, in general, most policyholders shouldn’t worry about their company demutualizing. A full demutualization is not as simple as it sounds. 

In Demutualization in the Life Insurance Industry: A Study of Effectiveness, Chugh and Meador explain that:

“Demutualization is a lengthy, complex and expensive process. A company which proposes to

undertake demutualization must adhere to the laws in its state of domicile. The plan of demutualization requires prior approval of the policyholders and the state regulators. Since, mutual life insurers accumulate surplus over a long period of time, an actuarial determination must be made regarding the distribution of surplus to past and existing policyholders. In addition, the company must determine the amount of “blocked assets” necessary to fulfill the future dividend interests and promised benefits of the existing mutual policyholders.”

So it’s not as easy or simple as management declaring they don’t want to be a mutual organization anymore. They need approval from the owners — the whole life insurance policyholders. They also need approval from the state’s regulators. 

There are some disadvantages to demutualization, too. A demutualized (stock) company is pressured to perform. In general, stock companies aim for double digit returns on capital. However, as many stock companies have discovered over the past 30 years, making that sort of return is extremely difficult. So difficult that companies like Voya.... have stopped issuing individual life insurance policies altogether and in fact have started raising costs on existing policyholders. 

Voya’s (and others) public statements to shareholders indicate that selling life insurance wasn’t profitable for the company. 

In general, it does not appear that life insurance is a profitable product for any stock life insurer over the long-term. 

Still, Chugh and Meador conclude that demutualization often improves the insurer’s ability to earn outsized returns on the company’s assets in the short-term.

Of course, policyholders lose their ownership interest in the company, and profits are diverted to stockholders who may (and often do) have other goals which are in conflict with the long-term interests of the policyholders. 

Policyholders want maximum long-term benefits and stability. They want guarantees. But guarantees are expensive and stockholders don’t like expensive because it cuts into their profits. They usually want to find ways to cut costs, increase annual sales, and boost quarterly returns. 

Because stockholders don’t get the cash value of the insured’s policy, the insurance company is put in the awkward position of serving two masters with two very different goals. That’s why you generally don’t see a stock company issuing a whole life policy, much less a dividend-paying whole life policy. 

Fortunately, an insurer doesn’t need to fully demutualize to get the benefits of demutualization. The “Iowa Method” allows insurers to create a mutual holding company alongside a public company. The mutual holding company has majority ownership in the public company, and all policyholders become members of the mutuality instead of owners. They still retain voting rights, however. 

This hybrid model is the preferred way to demutualize because insurers gain the advantages of both a public company (greater flexibility in investment choices and access to capital markets) and a mutuality. They also take on the responsibilities of both which comes with additional regulatory burden and costs. 

Functionally, little changes. Policyholders still receive dividends on their whole life policies and they still vote on the board of directors each year. There are no outside shareholders and management’s interests are generally aligned with policyholder interests. 

MassMutual is an example of a mutual holding company, but nobody seems to notice. In fact, the company still refers to itself as a mutual life insurer and policyholders have enjoyed some of the highest dividend payouts in the industry (historically). 

  • Growing up, I never received any real education in the realm of finance. I learned a bit on the importance of compounding interest in high school, but when I graduated college and got a job, interest rates were so low that it didn’t appear to be worth saving money. I saved a nominal amount in a 401k for retirement mostly because of a generous employer match. Retirement aside, I thought simply having a good cash flow was good enough. Fortunately, David began posting his writing and advertising his services around the time I started to become interested in learning more about managing money. After a few hours of him “showing me the numbers”, he convinced me that I was thinking about things incorrectly. His writing and book recommendations have been an immense aid in teaching myself better finance principles and proved to me that it is very important to save money for all of those opportunities and curve balls that life throws at you. I am now the happy owner of two life insurance policies, and I am armed with the knowledge to use them effectively. Thanks, David!
    Tom · Nuclear Engineer

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