"Let Us Prey." Why You Should Not Allow a Whole Life, Cash Value Insurance Policy Salesman into Your Office or Home.
Dec. 11, 2009
All life insurance is built on deliberate deception. The industry sells death insurance. It changed the name to life insurance because "death" doesn't sell.
Fire insurance insures against losses from fire. It is called fire insurance. The same is true of flood insurance, collision insurance, burglary insurance. But not life insurance. Also, not health insurance. It is sickness insurance.
Marketing considerations govern the sale of death insurance. Never forget this.
Second, the worst form of death insurance for buyers is whole life -- the lowest payment to survivors per premium dollar. Term insurance is by far the best. But it provides the least income to death insurance companies.
So, the industry deceives buyers again. They label whole life as "permanent insurance." An annual renewable term policy is renewable by law. It is permanent if you pay your premiums. The companies use deception to sell a much poorer product from the buyer's point of view.
Third, the whole life policy's insurance coverage shrinks over time. As you grow older, the company agrees to pay less to you above your own money in the policy. At age 65, your widow gets paid if you die. Not a dime of this is insurance. It's all your own money. She gets her own money if you die. Some deal! The salesmen do not show the buyer a chart of how the insurance coverage declines to zero at age 65. The buyer might figure out what is really going on.
Whole life insurance is bought by economically ignorant people. The industry profits from buyers' ignorance. It charges huge commissions, which are paid to salesmen. This is why corrupt salesmen over time cease to listen to their consciences about deceiving the ignorant. Whole life policies offer low coverage for young wives who need at least $250,000 of coverage. Few young families can afford to buy whole life policies this large.
A whole life policy is not indexed for price inflation. Your savings portion gets destroyed by inflation.
I call it a sucker's product. You may want to call it something else.
Families need term life insurance. But insurance companies like the fat profits on whole life, so the salesmen are rewarded well for selling whole life policies.
Doubt me? Spend $4 and read the fine book published by the economic research organization, the American Institute for Economic Research: Life Insurance from the Buyer's Point of View. Then read Norman Dacey's book on life insurance. That's all you need to read. Buy it used or get it by inter-library loan.
Once you read either of them, you will never again be tempted to speak with a life insurance salesman. You can buy term policies on-line at hundreds of sites. Buy the cheapest A-rated company you can find, either annual renewable term (permanent) or level-term (a physical is required after 10 or 20 years -- not permanent, but cheap).
If you don't want to spend money, read this article by Dave Ramsey. He gets to the heart of the matter.
Sadly, over 70% of the life insurance policies sold today are cash value policies. A cash value policy is an insurance product that packages insurance and savings together. Do not invest money in life insurance; the returns are horrible.
His conclusion is my conclusion: "Don't do cash value insurance! Buy term and invest the difference."
I regard anyone who sells whole life policies as morally corrupt. He knows they are losing propositions, but he will not sell term policies that would adequately protect widows and their children in their time of terrible loss. The whole life policies are so very profitable. "Let other men's widows do without. My widow will do just fine."
The reason whole life policies have such high commissions ("loads") is that companies know that the salesman's time is very valuable. If he can get in the door to make a sales pitch, the company wants him to sell whole life policies. The company pays accordingly.
At any time over the past 20 years, had I died, my wife would have received a tax-free check for a million dollars. It is tax-free money because we paid the taxes on the money before she paid the premiums.
The money would not have gone into my estate to be taxed. She pays for the policy out of her own personal bank account. The money would have gone straight to her -- no estate executor, no tax man.
This is the way to buy death insurance. There is no other economically efficient way -- from the buyer's point of view.
A WOLF IN SHEEP'S CLOTHING
A month ago, one of these self-deluded sellers of deception joined this site. He wrote to me two days ago.
I just subscribed to your website to learn about your views on money. A close friend and client of mine recommended you to me. So I went by faith and paid the $14.95 for the first month. My main reason to join was to find out what you felt about life insurance. Once I read your thoughts and advice I instantly got offended. I am very familiar with Ludwig von Mises and Murry Rothbard's works. I have studied "Human Action" intensely. I'm not an economist nor do I want to be. My profession is providing life insurance to clients. About 95% of the type of insurance I provide is whole life. What you said about whole life insurance is true, but it's not all like that. I suggest that you do some research about what whole life can actually do for a person in their living years…called a living benefit.
He then referred me to websites of some really big-time deceivers. They re-package the lousy product in order to sell to ignorant people with even more money to waste.
The concept is called "infinite banking." It's also called "become your own banker." It is really "Whole Life for Dummies With More Dollars Than Sense."
Here's the deal. You buy a high-commission policy. Then, after six years, the company lets you borrow against it. You pay the company interest -- to "yourself," the ads claim.
If you know what whole life insurance is, there is nothing new here. Any whole life policy lets you do this. Then what's new? Packaging. They sell the same miserable policy to people with more money.
Go to a CPA. Ask him if you can borrow against any tax-deferred retirement plan. You can if you follow IRS guidelines. You can put in the money and borrow when you want it. You pay interest to your plan -- not to an insurance company. You are your own banker.
Do you want to start your IRA with a super-high-commission mutual fund or a no-load fund? A no-load fund. Why? Because you can borrow more money from it. You don't give up a lot of front-end money to a salesman.
This preposterously poor investment plan has been around for 30 years. A critique is provided by two sellers of universal life policies, who complain that the whole life salesmen tell people that the deal is available only to whole life buyers. This cuts the universal life salesmen out of the territory. They deeply resent it. Read their critique here. It's aimed at insurance salesmen, not buyers. They are furious that the whole life agents are raking in the commission money from rich people before universal life salesmen get to them.
Their system is designed to be used with only higher income earners! Their prospects must be willing and able to put away large sums of money. Unfortunately, this severely limits the amount of prospects available to you. And, it puts you in direct competition with all the companies and advisors working the more affluent markets.
That is what infinite banking is all about, from an agent's point of view.
This re-packaged hustle is what my subscriber wanted to show me, so that I would understand that whole life can be a very good deal for buyers. He wrote:
The reason I took the time to write you is not to argue about insurance. I want individuals like you who have a following to be speaking the truth about how people can use life insurance effectively. The Lord requires us to seek knowledge and understanding. I pray you take the time to look up the websites. It will benefit you and your life more than you thought possible. Also, give me a call if you would like to speak further about this subject. I'm always wanting to learn about the truth. I have found some great articles written by you. I think you're doing a great job. Thanks for your time.
I do not like being lectured to by someone I regard as an immoral deceiver of the naive and trusting. When they invoke God's name, this enrages me as few other things do. That this man thinks I want to hear his self-serving views on this high-commission product is simply astounding.
I have studied this subject for 35 years. Yet he wanted to straighten me out. The product is inherently deceptive. It offers high-priced death insurance under cover of savings -- a savings product as poor as the death insurance portion.
I encouraged him to either quit selling the product or quit my site. I called him what I think he is: immoral.
He sent a letter back saying I was mean and that he would pray for me.
This is the second time I have gotten this response from a Christian seller of whole life policies. The first time was about 25 years ago at a Christian conference. Someone knew of my views on whole life insurance. He said I should talk with an insurance salesman in the room. I did. I told him exactly what I thought of his career choice. He said he would pray for me. As I walked away, I said to my companion: "He spells that p-r-e-y."
I have watched salesmen peddle these products to the ignorant and trusting for 35 years. I believe that the men who sell this product have what the Bible calls seared consciences. I believe their quest for income at the expense of the ignorant has blinded them morally. I do not trust a man who sells whole life insurance.
I canceled his membership and sent him a refund for one month.
Here is the latest Gallup poll rating of trusted professions. Insurance salesmen rank #5 from the bottom. They are above Congressmen. If the poll had specified "life insurance salesmen," my guess is that they would have been ranked lower than Congressmen, though possibly above used car salesmen.
Parents: please show this article to your teenage children. I have placed it in the public-access portion of my site. Send it to a married daughter. Your son-in-law may have bought a whole life policy. If he dies, you may have your daughter and her children living with you a year later, after the money from the whole life policy is gone.