Pulling the e-brake on bad life insurance advice

by David Lewis

Once upon a time yours gluteny was careening down the highway in his beat up old Honda.

I was probably doing something like 70mph.

Anyway, I lived in upstate New York at the time (no, not Albany or White Plains) and if you’ve ever lived in upstate New York (no, not Albany or White Plains), you know rust is a huge problem.

Why is it a huge problem?

Because New York State salts and sands the bejesus out of their roads in the winter, which lasts a solid 6 months… sometimes 8 months.

Anyway, what happened was I had to get off on this exit and make haste to some appointment… and I go to press on the brake and…



The brake lines had rusted through and popped and there went all my brake fluid all over the highway leaving yours gluteny with NO BRAKES.

So there I am… speeding down the highway… no brakes.

And then… speeding down the off-ramp. No brakes.

Well, that’s not true. I did have a brake.

The emergency brake.

Every vehicle in the U.S. has had one of these things since… I dunno… since cars were first invented.

Anyway, I pull up on the hand… errr. emergency brake… and the car comes to a stop… slowly.

But at least it stopped.

Where was I going with this?

Oh yes… emergency braking.

No one… not in their right mind anyway… NO ONE actually relies on the emergency brake.

All modern vehicles have electronically controlled, advanced hydraulic, braking systems.

You press the left pedal on the floor and your big piece of steel and fiberglass with an explosive tank of gasoline onboard comes to a gentle stop.

No Kaboom.

I mean, could you imagine actually using an emergency brake as a normal method of braking?

It’s insane.

It’s impractical.

And… it REQUIRES a huge shot of adrenaline to work.

AKA it REQUIRES an “oh sh*t” emergency.

Reminds me of something something something in finance…

Oh yes.

Life insurance.

Every dividend-paying whole life insurance policy comes with guaranteed growth and cash values.

You pay premiums, the insurer promises you some minimum amount of growth in the policy’s cash value (the savings component).

These guaranteed growth numbers are basically the “emergency brake” of the policy.

If the insurance company is not so profitable… the emergency brake keeps your policy from kabooming.

But no one in their right minds actually relies on those guaranteed values.

And no, I’m not saying that because I sell insurance policies for a living.

Even fee-only insurance consultants, ALL of whom are highly critical of the life insurance industry, believe it’s insane to rely on guarantee whole life values.

Glenn Daily, one of the more well-known fee-only insurance experts in the industry, published an article long time ago titled, “Life Insurance Guaranteed Values Are a Big Fat Idiot” where he argued that it’s utterly stoopid to think you’ll ever have to rely on the minimum  guaranteed values of your insurance policy.

Guaranteed values in life insurance were something regulators forced insurers to include, so consumers would know — hypothetically — what they would get if the insurer was unable to pay a dividend.

Incidentally, such a thing has never happened to any of the established mutual insurers in the U.S.

It could be the fact that insurers are insanely profitable every year (something liberals are quick to point out in their diatribes)…

It could be their 300%-400+% surplus (cash and assets backing up all their liabilities)…

It could be their simple as soup business model (sell insurance, invest in safe and/or guaranteed investments, collect mutual fund fees, collect commercial rents from established businesses, etc.)…

And so on.

Point is, whole life guaranteed values are not normal returns. They’re “oh sh*t” returns. They’re the returns you’d get if something catastrophic happened in the financial markets… and I mean worse than The Great Depression. A LOT worse.

This simple as soup business model is why whole life policies from the major mutual insurers have averaged a tax-free return of between 4% and 7% for the last 40 years.

Not bad considering most people struggle to earn 6% a year after investment management fees and taxes.

So who are all these people screaming on the airwaves and in forums about how whole life is a crappy investment and that you’re probably only going to get your  whole life’s guaranteed returns?

Know-nothing investors, investment “professionals”, financial ex-spurts, and people selling investments or banking products, that’s who.

Classic salesmen’s envy.

But what about me?

I sell insurance. Should I start bad-mouthing investments?

No way dood.

If you know what you’re doing, a good investment can make you VERY wealthy.

But… the choice is not 401k vs life insurance or stocks vs life insurance or gold vs life insurance or life insurance vs any other investment.

The choice is really about *how* you buy that investment.

You can pay with cash, use margin accounts, or use a financial tool, like life insurance, to finance the purchase of those investments.

I’ve said it before and I’ll keep saying it… you finance EVERYTHING you buy… EVERYTHING.

Even investments.

You either pay interest to someone else or GIVE UP interest on your savings…

When you buy an investment, you give up the opportunity to invest in something else. There’s an opportunity cost there. This is why banks and brokerages charge interest when you borrow their money to invest in stocks or forex or anything else.

But it applies to your money too.

You either recognize it or ignore it.

Either way, it’s there.

By the way, this also applies to life insurance premiums (but that’s a story for another day).


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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.