The Whole Life Insurance Scam - What Salesmen Won't Tell You - YouTube

I am sick of salesman pitching whole life  insurance is a good investment this is Rich from  

RichonMoney.com and today we are talking about the  whole life insurance scam what the salesmen aren't  

going to tell you about this terrible investment  here are the supposed benefits of whole life  

insurance a guaranteed death benefit that gets  paid even if you die of old age level premium  

payments that never increase a guaranteed and  assumed rate of return that lets the cash value  

of your policy grow cash value to borrow against  to fund investments or emergencies tax advantaged  

growth supposedly much like a retirement account  this sounds great right that is exactly why so  

many people get suckered into it the strongest  advocates of whole life insurance which as far  

as i can tell are the people who sell it claim  it's a better investment than the stock market  

or retirement accounts this is flat out wrong it  is one of the worst and most complicated ways to  

invest that i can think of the people that sell  this crap don't understand finances are investing  

they understand sales and commissions their  commissions are among the highest in the industry  

if you stay tuned till the end i'll talk about  limited cases when whole life insurance actually  

might make sense if you want to understand what  whole life insurance is you need to first know  

what the much more common and useful term life  insurance is this is probably what you're already  

familiar with and for most people this insurance  actually makes sense a term life policy is where  

you pay a reasonable monthly premium for a set  amount of years say 20 or 30 years and if you die  

during that time you get a big payout in my case  i paid about 40 a month and had a million dollar  

policy that price was good until about the age  of 50 then the policy ends term life insurance  

is affordable because people don't die young most  policies are never paid out and then the insurance  

industry thought up something that could make them  a lot more money called whole life insurance let's  

break each one of these benefits down a guaranteed  death benefit it's true whole life insurance  

does have a guaranteed death benefit and term life  insurance does not if it's a million dollar policy  

you will get that million if you continue to pay  your premiums sounds like a good deal right it's  

not look at how much you pay for this policy  these are quotes from a website that sells  

whole life insurance as you can see a million  dollar policy will cost you 827 dollars a month  

that's like another mortgage payment seems high  it is 10 to 20 times higher than an equivalent  

term life insurance policy you can get a million  dollar term life insurance policy for less than 50  

bucks a month let me help you with the math whole  life is 16 times the cost in this particular case  

why so much more because the term life policy  is only for the first 30 years or so you likely  

won't die during this period and won't get a  payout here's the trick they are charging you  

so much freaking money because they're gonna  pay you when you die even of old age that's  

expensive and for most people that understand  investments unnecessary if you understood the  

ideal way to invest your money you would know that  by maxing retirement accounts from an early age  

and investing in broad-based index funds you  will have a significant net worth probably a  

few million by the time you're 60 years old in  fact it'll probably be much sooner than that  

in my case i was in my early 40s by the time  these much more affordable term life policies  

run out you already have a significant  net worth because you understand investing  

and you don't need this overpriced whole life  policy anymore life insurance is something you  

only need if you die young and it's much  cheaper to insure for that unlikely scenario  

certainly you don't need a 1 million payout at 85  years old your own investments will have made you  

a multi-millionaire by then well that's unless  you waste a shitload of money on an unnecessary  

whole life policy let me explain exactly what i  mean let's do a quick compound interest exercise  

that whole life insurance salesmen do not want  you to understand instead of buying this whole  

life insurance policy for 827 a month let's invest  that money in an index fund for the long term this  

happens to be how i've been investing for the last  25 years if you invest 827 a month for 50 years  

an index fund and it grows at 7 average per year  you will have 4.5 million if you buy a whole life  

insurance policy for 827 a month after 50 years  you only get 1 million dollars where did that  

other 3.5 million go to your insurance company and  your salesman they thank you whole life policies  

only grow at about four percent and you still  pay that fat commission this is where the whole  

life insurance salesmen really try to lure in  those real estate investors something unique  

to whole life insurance policies is they have a  cash value that you can borrow against the cash  

value in your policy is growing with your premium  payments as well as by the guaranteed and assumed  

rate of return for many years the cash value of  your policy is less than the sum of your premiums  

because of the high commissions that need to come  from somewhere and commissions can be 50 to 100  

of one-year premiums eventually the policy starts  making money and you can borrow against that cash  

value for any reason you would like you are  supposed to be impressed by this ability to  

borrow against your own policy they sometimes  call this infinite banking banking on yourself  

being the bank they try to make you feel like  doing this means you are outsmarting the evil  

banking system that's actually a pretty stupid  thing to think here's what i would offer what  

if you had just invested the money yourself making  millions more than what your policy makes and when  

you need the money just take it out of your own  account you're not even borrowing at this point  

it's your money you'll make at least seven percent  in the market and millions more over a lifetime as  

i've already explained using index fund investing  this can be done in a normal brokerage account  

or in a retirement account in both cases you'll  still beat the pants off a whole life policy why  

borrow money from yourself through an expensive  overcomplicated policy with unimpressive growth  

and high commissions for cd salesmen no offense no  this ability to borrow from your own policy does  

not impress me it appalls me and the returns  are abysmal for such a long-term investment  

high commissions four to five percent growth just  so you can borrow against it i still think going  

to a real bank to borrow money is economically  much smarter whole life insurance salesmen like  

to remind us that the premiums never go up and  this is actually true but here's the problem  

in the example i just talked about the whole  life policy is more than 16 times more expensive  

than a comparable term life policy of course  these premiums never go up they're already sky  

high here's another big issue with these premiums  let's say you lose your job for six months you'll  

need to come up with a 50 a month so you can  keep your term life insurance policy for a  

million dollars no big deal in case you die and  you can help your family out what are you going  

to do about your 827 obligation for whole  life insurance you won't be able to pay that  

when you stop paying you surrender the policy  and you get your cash value minus penalties this  

causes an already poor investment to get worse you  don't get the death benefit you may get taxed on  

money you thought would be tax free and you may  have losses that you can't deduct surrendering  

whole life policies ends up happening to more  than half the people that take out these absurd  

plans they realize it's a raw effing deal now  let's shift to the next over exaggerated benefit  

touted by whole life insurance salesmen again no  offense to these salesmen they've got to make a  

living these policies typically have a guaranteed  rate of return on the cash value of the policy of  

at least two percent the return should be higher  than that and usually are they also give you an  

assumed rate of return that might be four percent  maybe five the cash value of your policy will  

likely grow at some rate between these two numbers  while that's not a bad rate of return compared to  

a savings account it's a really crappy return for  decades of investing or even a lifetime as i've  

already covered earlier if your investments grow  at even seven percent and more is probably likely  

you stand to make far more money investing it  yourself in the market in my earlier example you  

make 4.5 times more money investing it yourself  over 50 years as stated before you can borrow  

money against the cash value of your policy while  you typically pay interest for this privilege  

this is a tax-free loan salesman like to emphasize  this tax-free loan as an amazing benefit for real  

estate investors it isn't really a benefit as all  loans are typically tax-free to say it's a benefit  

is stupid when you borrow money you still have  to pay it back that's why it's not taxed but what  

about the death benefit advocates of whole  life insurance policies which are very few  

will talk up the tax benefits of this policy  let's understand this they say that when the  

death benefit is paid it is generally not taxed as  income well isn't that something actually it isn't  

something almost any death benefit of any kind  including the 16 times cheaper term life insurance  

policies are also tax free payments sorry whole  life salesman but this is not a unique tax benefit  

but there's tax free growth right the cash value  of your whole life policy is not taxed while it's  

growing this is a good thing and similar to how  retirement accounts work but the problem with  

this is you don't control the money another is  it grows a lot slower than it would if you were  

invested in the stock market if you invest your  money in either an ira 401k tsp or other type of  

retirement account it will likely grow much faster  and also have tax free or tax deferred growth  

bottom line here retirement accounts are superior  investments to whole life insurance this is not an  

opinion it's a fact if you are forgoing investing  in retirement accounts to stuff money into your  

whole life insurance policy and stuff money into  your salesman's pockets you're a sucker whole life  

insurance salesmen are going to love you and buy a  vacation home in the bahamas off their commissions  

from you so when is whole life insurance right for  you well one example that i can think of is when  

you have a special needs adult who cannot earn  money or take care of themselves if they're going  

to live with you for your entire life and could  use an infusion of tax-free cash when you die then  

this isn't the worst thing in the world i still  think it's better to invest some money yourself  

and then just give them what they need another  possible situation is you have already maxed  

out your retirement accounts plenty of money in  taxable accounts significant real estate holdings  

and you still got [ __ ] loads of money you've got  to park somewhere okay whole life then i wish i  

had this problem whole life insurance policies  are pushed by salesmen as a great investment  

or tool for helping you achieve your financial  goals unfortunately they often try to claim these  

are superior to standard retirement accounts  and try to convince you to forego investing in  

tsp ira 401k in favor of these insurance products  they are inferior investments scams if you ask me  

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