From the bowels of the Interwebs:
“Whole life is a crappy investment. Stay away!!! Disclaimer: I have not research in detail.”
“Without doing any research on this, I’d say you’re better off doing ______”
(yes, someone actually wrote that — I won’t tell you what they thought was a better deal…it was pretty…how shall I say this…off the wall)
It’s not hard to find these kinds of “arguments.” They’re everywhere.
My wife and I are happy with our insurance policies, but that doesn’t mean much to a skeptic (and it shouldn’t mean much to you either).
Which brings me to a major hangup people have using whole life insurance: time.
Goo-roo fan boys are antsy.
If it doesn’t happen like yesterday, it’s no good. Funny thing is…these same people turn around and recommend long-term investing as a solution.
It always amuses me when someone says something is a terrible idea and follow it up with “but I don’t know a lot about it.”
So thoughtless (and intellectually lazy).
But you know what they DO know a lot about? Vanguard. They’ll talk your ear off about it.
Now I’m not arguing that investing is a bad idea. Insurance companies invest your premium dollars so clearly it works. And, lots of people out there claim to be doing really well on their own.
But I also think people tend to overstate just how well they’re doing. I know a couple of blokes who brag about making 10%-30% but whisper about losing 60% doing some fairly high-level and complex trading.
Lotsa forum warriors and armchair ex-spurts will tell you doing 10% in the stock market is easy.
Whether or not you agree with these people is besides the point. Morningstar, DALBAR, heck even Vanguard have done studies showing their average client makes between 3% and 5% over the long-term.
Why the disconnect?
Most people will look at a mutual fund, for example, and see the fund returns X%. They’ll assume they earned the same thing. But, this is (almost) never the case. Dollar-cost averaging, fees (however miniscule they may be), taxes, and a few other things knock that 10% into something more like 4.4% to 6.7%.
Any idea what whole life has earned over the last 30 years for policyholders who faithfully paid their premiums every year?
All the major mutual life insurers have done studies on their own dividend performance as well as cash value growth on real policies (not illustrations of policies). Results: between 4% and 6%.
Even Blease Full Disclosure (an independent research company) found whole life to give competitive returns as a conservative asset.
Does this mean they will outperform an investment? No, I wouldn’t expect them to. It’s insurance after all. It’s meant to protect other assets.
But…if you fall into the trap of presumption without proof, you’ll never know what it can really do.
On the other hand, if you want to see what your “bottom line” numbers would be if you owned a good insurance policy, go get yerself on my email list. It’s where ALL the action happens, Jackson.
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