Random conversations with financial experts

Warning: This is a long email.

Following is a dramatization of actual discussions with various financial experts and life insurance agents:

Financial expert: “Whole life insurance is expensive.”

Answer: All life insurance is expensive. The main difference is how those costs are distributed over the life of the policyholder, out to his or her maximum insurable age (usually, age 85 or 95).

In that sense, it doesn’t matter whether you buy term or whole life. These costs are not wildly out of proportion to one another, nor should they be.

In whole life, a lot of the costs are paid for up-front. With most term policies, you pay the costs on the backend, which is why most everyone cancels their term contract after the level premium period… because it’s too expensive.

And of course no one buys annual renewable term anymore because it is the pure cost of insurance which, again, is very expensive.

If you did a comparison between whole life and term, keeping the time periods the same (i.e. out to max insurable age), the out of pocket premiums for whole life are always lower than for term because of the time value of money (interest earned on cash values). Cash value in whole life is the reserve that pays for the future death benefit, reducing the net amount at risk (the insurance component of the death benefit). This, in turn, reduces the out of pocket premiums necessary to pay for the insurance.

Of course, no one does that because then the argument switches from “term is cheaper than whole life” to “I don’t need term insurance anymore.”

How convenient.

But, I understand why some people have to make that argument.


Financial expert: “Non-guaranteed dividends are just an estimate. The actual return could be higher or lower. I don’t see any point in locking the money up in a life insurance policy longer than a bank CD AND earning less.”

Answer: But, do you see any point in potentially earning more?

Actual whole life cash value performance over the past 30+ years shows that whole life from the major mutual life insurers beat typical CD rates.

Does that mean it will continue? No it does not, but the potential is there and nothing has fundamentally changed how insurers make money and how they operate their insurance business.

The only real changes being made now are operating costs are going down as insurers update their legacy systems.


Investment advisor: “Life insurance dividends are not guaranteed and really you’re probably more likely to get the guaranteed rate and not anywhere close to the dividends they project.”

Answer: Someone should tell the insurers about this because they’ve been paying dividends for the past 100+ years.

Or, in the words of Glenn Daily (who is, oddly enough, highly critical of permanent life insurance and the insurance industry as a whole): “As I explained in “Life Insurance Guaranteed Values Are a Big Fat Idiot”, the columns of guaranteed values in sales illustrations for traditional whole life represent an absurdly implausible scenario.”

But it’s true that insurers don’t always pay what they originally illustrated. If a policyholder bought a policy in 1980, the projected dividend rate rose and then fell slowly and steadily over time. The early compounding resulted in more dividends being paid than what was projected.

If someone bought a policy at the tail end of a change in interest rates, like in the 1990s, it’s possible they could be paid less than what was originally illustrated if they cashed out before the dividend rate rose again.


Financial expert: “Whole life insurance cash value returns are based on bonds, so you should not expect more than bond-like returns, minus an expense charge from the insurer.”

Answer: Not true.

Yes, they own bonds and yes their general investment account is filled to the brim with them but… this is one of several revenue streams they have.

Most of the mutual insurers (which sell whole life) also own non-insurance businesses, collecting revenue for managing investments, which are not bond-based income.

They also profit from the actual insurance business (wait, isn’t that part of the argument for why whole life is so expensive?). This is why the long-term IRR on cash value tends to exceed bond returns for some policyholders, particularly those who have held their policies for a long time.

The thing everyone hates about insurers (i.e. they make a lot of money) is why they pay a good return to policyholders.


Life insurance agent: “A 20-year term policy is cheaper than whole life insurance because you only pay premiums for 20 years and whole life premiums go on theoretically forever.”

Answer: Let’s be serious.

If you’re comparing 20 years of premiums and expense loading to 55 years of premium and expense loading, then you’re not showing that 55 years of premium is more expensive than 20 years of premium. You’re showing you bailed on the first product and stuck it out and paid more premium in the second, which is not the same as “more expensive.”

The out-of-pocket premiums for whole life must always be less than an equivalent term product due to the cash value of whole life reducing the insurance amount (net amount at risk) over time.

This is something that’s been explained in every single life insurance 101 course offered in the U.S. since at least 1924. That this is still misrepresented by licensed insurance agents in 2018 is absolutely fantastic.

Whenever investments are discussed, agents talk about time horizons of 30+ years and then conveniently forget to add in the cost of term life insurance to any alt analysis of “BUY TERM and invest the difference,” which drags down return on total outlay. But, whenever whole life enters the discussion, they fully recognize the cost of insurance and start talking about the return on cash value in 10-year time horizons.

Seems legit.


Financial expert: “Only those who sell whole life policies tout them.”

Answer: Not true.

Folks like Peter Neuwirth (a retired life insurance actuary) bought his whole life policy from a life insurance agent and from a company he didn’t work for or consult with. He recommends people buy it because he believes it’s the greatest invention the actuarial profession has ever come up with.

… But I see where you’re going with this. You could reasonably argue the same is true of index funds.

Mostly the only people “touting” them are people making money off them, either directly or who are getting endorsement deals or who profit in some other way from investors putting money in them (e.g. high frequency traders who can front run index funds).

But, so what? The only people touting Dyson vacuum cleaners are people selling Dyson vacuum cleaners.

Welcome to capitalism.

Most people who own whole life insurance believe the benefit is so obvious so they don’t have any reason to say anything. They just assume everyone else “gets it.”


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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.