By Dr. Rikki Racela, WCI Columnist
I have written previously of how being duped into purchasing whole life insurance torpedoed the financial lives of my wife and me, dual-income physicians who ended up in $31,000 dollars of credit card debt over seven years because of this financially deadly product. I am not alone as hundreds of doctors have documented their woes on one of the, if not the, longest WCI forum threads. It is hard to believe how phenomenally intelligent doctors could be financially illiterate, but it is even much more unfathomable to learn how many doctors like myself were fooled into buying the worst money-sucking financial investment product in the industry.
How does this happen? In short, our brains make us do it!
First off, a disclaimer.
Before I go on, I want to encourage those readers who were smart enough not to be duped, unlike me, to continue reading. The following will outline not only how doctors and high-income professionals make the mistake of a whole life purchase, but how they make bad financial decisions in general. It will also help you convince other doctors to get out of their whole life insurance policies. After becoming financially literate, I found out that one of my own colleagues in my group also purchased this terrible product. You probably know tons of colleagues who have been suckered, and this will help them get out of a whole life policy and repair their financial lives.
How the Financial Industry Uses Our Own Brains Against Us
In reality, our brains don’t make us buy whole life. Instead, the financial industry insidiously uses ingrained human behavior to its profit and our loss. Make no mistake, the insurance industry that tricks us into buying whole life knows more human psychology and neurology than any doctor, including myself as a neurologist. How is this possible? As doctors, we utilize our knowledge of the human brain and psychology to help our patients. The insurance industry wields that same knowledge for pure profit. It has perfected the art of using behavioral biases and heuristics to get you to sign on the dotted line. What are these biases and heuristics? From my experience of being screwed, these include familiarity bias, confirmation bias, myopic loss aversion, mental accounting, bundling, the halo effect, anchoring, sunk cost fallacy, status quo bias, and framing. Whew, no wonder I got taken! Let's dive in.
Familiarity Bias
It turned out the deliverer of my financial doom was a close friend of mine touting himself as a financial “advisor.” Unfortunately, he was a salesman, but I had grown up with the guy playing Little League and high school football together in the same town. There was a familiarity bias where I felt safe and comfortable choosing him to manage my money and taking his direction. As Jason Zweig writes in his book Your Money and Your Brain, familiarity bias helped early humans survive:
“If our early ancestors had not learned to steer clear of the germs, predators, and other dangers lurking outside their own bodies and beyond their immediate home ground, they would not have survived. Too much curiosity could kill the cave dweller. Over the course of countless generations, a preference for the familiar and a wariness toward the unknown were ingrained into the human instinct for survival. Familiarity became synonymous with safety.”
My buddy was familiar to me so I trusted him. Financial “advisors” are, after all, people, too. Because of familiarity bias, they are seen by potential marks as friends, teammates, brothers, cousins, etc. And the insurance industry knows this familiarity bias exceedingly well. Companies teach their salesforce to hit up family and friends so they can sell whole life insurance. Because of familiarity bias, our defenses are down, and we put the BS meter away. This is exactly how Bernie Madoff scammed victims out of billions.
A 2010 Forbes article written by finance professors Li Huang and J. Keith Murnighan had this to say about Bernie:
“Our research suggests that Madoff may have deliberately or inadvertently taken advantage of the automatic trust process regardless of whether his family members and business associates were victims or confederates. Even if he didn't seem trustworthy, the fact that his closest relatives and associates invested with him could have provided a subtle, non-conscious signal that he was actually trustworthy. After all, foxes never prey near their dens, and thieves only steal far from their homes.”
And it was this familiarity bias that resulted in my buddy preying on me with the sharp, dirty teeth of whole life insurance policies sinking into my financial skin.
Is Whole Life Insurance a Good Investment? Seeking Confirmation Bias.
Despite only having read Dr. Jim Dahle’s book in December 2018, I had years earlier encountered his work on a website called QuantiaMD, where doctors were paid to produce video lectures regarding various physician-related topics. As part of one of those lectures, Jim had explained that whole life insurance was not a very good investment. He said it was meant to be sold, not bought; that it would be a hindrance to building wealth; and that it only enriches the “advisor” selling the product.
Whoa!!! Wait a minute!!! After seeing this lecture, my mind was blown, and immediately I googled the following: “Is whole life insurance a good investment?”
I don’t exactly remember what popped up, but when you google this now, you get this as your first hit:
I do remember that in 2016, when I googled this question, a similar statement popped up, “confirming” that whole life insurance was a good idea (as you can see in the words bolded in the above screenshot), and I disregarded Jim's sage advice. Hence, I fell victim to confirmation bias, where you seek out information that confirms that you did not make a mistake while disregarding any information to the contrary.
Shockingly, the mere act of me initially approving whole life insurance as a good idea solidified my accepting future information supporting it, while disregarding dissenting information. Amazing how our brains are wired! Forget the movie Inception where Leonardo DiCaprio had to infiltrate a guy’s brain while asleep to plant a thought. I should have taught Leonardo DiCaprio about confirmation bias! Or better yet, the insurance companies should have taught Leo what they teach their whole life insurance sales force.
What I should have done to combat confirmation bias was google this question next: “Is whole life insurance a bad investment?”
What pops up nowadays is:
It turns out one of the best ways to fight confirmation bias is to ask the question in a different way. Should have done that years ago.
Myopic Loss Aversion
I happened to be duped into buying whole life in the summer of 2012, only a few years past the Great Recession. This recent nosedive of equity and real estate markets was used as ammunition to sell whole life. My buddy scared me with how bad the recession was—how it was the worst market crash since the Great Depression—and that the cash value within whole life insurance is shielded from such tragedies. Unbeknownst to me then but clear as day now, he was using the behavioral bias of myopic loss aversion. This behavioral bias is when people and potential financial whales like doctors focus on the short term, leading to an overreaction of negative events (the recession in my case) at the expense of doing things that would benefit in the long term (like paying down student debt or buying equities at discount prices). Pretty slick!
Life Insurance that Accrues Cash Value – My Mental Accounting
Another sort of crafty behavioral bias my supposed “advisor” used to fool me was utilizing mental accounting when describing the cash value portion of the whole life policy. This part of the policy would be earmarked for retirement, a worthy goal where he reinforced to me time and time again that most Americans do not save for retirement. Here comes whole life insurance to save the day!
However, at the time I purchased the policy, I still had medical school debt which I could have paid off. But because of mental accounting, the money I was throwing away at the whole life policy was supposedly building my retirement nest egg. I had placed a different value of the whole life premiums vs. making student loan payments under the deceptive guidance of my salesman. Man, I thought, I can’t touch the part of my budget going to whole life insurance since it’s earmarked for retirement. I didn’t realize I was being played.
The mental accounting bias can be fought by remembering that money is fungible, and in my circumstance, paying whole life premiums and building cash value was taking away from making me debt-free. I should have looked at the money I was throwing away on life insurance premiums as part of an overall financial plan. I should have evaluated those dollars and should have placed them where they built the most wealth. Mental accounting prevented me from realizing that paying $28,000 of whole life premiums was not making the greatest return on my money. Turns out, after seven years, I had paid $170,000 of whole life premiums for my wife and me. I could have paid off our student debt that was around 3% interest and locked a guaranteed rate of return of 3%. My return on my whole life insurance policies? Well, I lost $50,000, as my cash value for the whole life policies were $53,000 and $67,000, respectively. You can do that math, but it’s not that hard to calculate that whole life set me way back.
Currently, I have a little less than $100,000 of student debt left. Yes, my wife and I could have been debt-free by now.
‘Benefits' of Bundling Insurance
Oh man, this is a whole life insurance salesman's signature selling point: that it is the all-in-one bundled solution for all your financial needs. From buying a home (my buddy told me you could borrow against the cash value) to paying for college (borrow again from cash value when the kiddos are college age) to funding retirement (can again borrow against cash value) to leaving a legacy (I was sold a $1 million death benefit), whole life insurance is sold as being the only financial play that meets all your financial goals.
But as Jim Dahle points out, whole life insurance does not help one accomplish any financial goal particularly well, and there are many other vehicles that are cheaper and more beneficial to accomplish these goals. It's just like buying the Verizon Triple Play because it's cheaper bundled together even though I never use the landline. I bought whole life because my buddy said it could enable me to accomplish multiple financial goals in a single solution. The bundling bias made me reflexively think I was getting great value.
The Halo Effect
Did I mention that my salesman was a Certified Financial Planner? Yes, despite being an insurance salesman, he had the CFP designation, one that according to the CFP website states:
“CERTIFIED FINANCIAL PLANNER™ certification is the standard of excellence in financial planning. CFP® professionals meet rigorous education, training and ethical standards, and are committed to serving their clients' best interests today to prepare them for a more secure tomorrow.”
In 2012, when I made the damaging financial decision to buy whole life, I did have the foresight to verify the significance of my salesman’s credentials, including the CFP designation, and I was told that he had my best interest at heart. However, the CFP credential unfortunately can act as beautiful sheep’s clothing for greedy wolves. I mistook the CFP board as similar to our medical boards—as doctors, if we violate the MD/DO standards of care, we lose our license. This led me to blindly and faithfully sign on the dotted line to purchase whole life, thinking that if my best interests were violated, my buddy would lose his CFP designation. The CFP gave my buddy the “halo effect.” Just like when the picture of a beautiful person makes us automatically assume they are a good person, just having a CFP made me feel my buddy would be a fiduciary and automatically have my best interest in mind.
Alas, the CFP is more a knowledge-type degree, just like getting a college degree in religion does not obligate you to be religious at all. Allan Roth, author of How a Second Grader Beats Wallstreet and a previous WCI podcast guest, wrote an article about how the CFP board has given up in trying to protect the public from abuse of the CFP designation. Insurance companies recognize this halo effect all too well and hire CFPs all the time to fool people like myself into a false sense of security. A CFP is incredibly not required to be a fiduciary ALL the time but instead can be fiduciary one minute and sell you a whole life policy in the next, meeting a different standard called the suitability standard. It is ridiculous how the insurance industry can get away with this, but that is how the law stands now, making the halo effect a continued and effective weapon when harpooning whales like me with whole life policies.
Anchoring
I remember when I was first shown material for purchasing whole life insurance, I was first presented with the illustration. A whole life illustration demonstrates how much cash value one can accrue each year until one reaches old age. And man, those numbers were high! Looking back at the illustration, by age 65 I would have paid $371,930 in total premiums, and if I let the cash value ride, it would have grown to $1,487,045 by age 77. Of course, when I was being sold the policy, my buddy emphasized this number before pitching me anything else. What he was doing was anchoring me to the huge number. I believe he did mention the asterisk right next to this number later on in his pitch, glossing over quickly that this amount is not absolutely guaranteed and would need paid-up additions and continued reinvestment of dividends and for the insurance company to continue to be profitable, and on and on and on.
It didn't matter what else he said; I was already anchored to the humongous amount he mentioned first. He anchored me to the highest number on the illustration page, and that was what stood out in my brain for the rest of his sales pitch. Due to anchoring bias, as I signed on the dotted line, all I kept thinking about was the $1.5 million.
Sunk Cost Fallacy
Even as I was getting to be financially literate, I was tempted to keep paying into whole life premiums and just let this financial mistake ride because of this next bias. The sunk cost fallacy is when you keep throwing more money in after bad. One example would be government projects where, after throwing billions of dollars in a project that turns out to be getting too expensive, the government decides to keep throwing in more money. As the thinking goes, “Well, we paid so much into it, we can't quit now.” Another famous example would be if you bought very expensive tickets to a concert, but on the night of the concert, there was a huge blizzard. Now you will have to risk dying in an ice storm just to make the pricey concert. What do most humans tend to do? Risk the immense cost of losing your life, go out into the ice storm, and attend the concert.
This is the sunk cost fallacy. In terms of whole life, I could have said, “Well, I spent so much money on whole life, and eventually it will come out positive sometime in the future. Might as well keep paying.” I was tempted to go down this route as the sunk cost fallacy is part and parcel to loss aversion. If the government doesn’t see that expensive project through, then it just wasted whatever it spent so far. If you don’t go through that deadly blizzard to attend the concert, then you are out the cost of those tickets. And if I didn’t keep paying into whole life, then I am acknowledging that I was stupid and lost $50,000.
Status Quo Bias
This was another bias that tempted me to stay in my policy. My salesman had mentioned there were so many other options for investing—from stocks, bonds, commodities, annuities, mortgage-backed securities, real estate, lions and tigers and bears oh my! And so on and so forth. His explanation of the financial world made me vertiginous, and this was on purpose. He, as well as the entire financial industry, is trained to present finance as intimidating and infinitely confusing, even for a doctor. They are playing to the human brain’s status quo bias, that when presented with many complex and confusing options, the bias is to stay in whatever investment you are in. It is related to the paradox of choice, where if presented with too many choices, we end up having analysis paralysis and not making any choice at all. My buddy was making the financial world intimidating and scary, tempting me to stay in my whole life policies.
Framing
Oh man, this one really got me. As my “advisor” was pitching whole life insurance, not once did he ever say I was “purchasing” anything. He explained that the death benefit would be the greatest financial “gift” to my future children and that the premiums I would pay would be an “investment.” What better gift to give your children—your seed and future, those cute kids—in the event of a terrible tragedy of your passing than to bequeath them $1 million? Or that even if I didn’t kick the bucket, the cash value was an “investment” for whatever my financial goals could be in the future. That is exactly how my buddy framed it. I wasn’t buying a whole life policy—I was giving the best gift you could give to your children! I was showing how much I loved them through buying this policy. And even if I didn't die, I was “investing” through the accumulation of cash value, taking a major leap forward in accomplishing my financial goals. Of course I signed.
Fighting Fire with Fire: Reframing
Despite all the above human biases at financial companies’ disposal, how did my wife and I manage to fight these embedded psychological tendencies used against us? We used our own personal and painful experience with whole life insurance against the insurance companies. We used the framing heuristic to bestow on us the strength to fight whole life and to go down the path of financial literacy. We fought fire with fire.
Seven years after my purchase of our whole life policies from the buddy who, by the way, I no longer talk to, I was attending my 3-year-old son’s Little Gym Olympics. The Little Gym is a chain of gyms teaching gymnastics to infants and toddlers. My son had completed the season, and there was a mini-celebration. No big deal, unless it is YOUR child in their first Little Gym Olympics. Luckily I was there, but guess who couldn’t come because she had to take extra call to keep up with paying $28,000 of yearly whole life insurance premiums? Mommy, my wife, a dedicated anesthesiologist, was in the hospital putting in epidurals on the Valley Hospital OB floor at the same time as our son’s event. I sent her pictures. She told me she cried when she saw them—luckily pregnant women’s backs are turned while they're receiving epidurals so they didn’t see her tears.
How is that for a frame? My wife will never get that time back. Whole life took that away from her. At the same time, while our time from our children was stolen from us, we were enriching insurance company CEOs to lavishly have time to hang out with their own children. One article cited MassMutual’s CEO making as much as $18 million! (FYI, it was not MassMutual who sold me the policy, but an even more infamous doctor financial killer insurance company.)
If any readers are pitched whole life, remember this story. Or if you know somebody who got hoodwinked, relay this story so they get out of their detrimental whole life policy. Frame whole life insurance this way. Tell them how whole life caused a hard-working doctor to miss her son’s Little Gym Olympics, while at the same time funding a financial CEO’s opulent eight-figure lifestyle. My wife will never get that moment back. Thanks, whole life insurance!
We moan as doctors how it is our busy careers that prevent us from spending time with our families. But for my wife and me, it was whole life insurance. You know what my wife does now? Instead of paying $28,000 in annual whole life premiums, we make the financially intelligent and family-oriented decision of paying $1,500 to a colleague in her group to take call. That’s almost 20 moments a year where, instead of throwing money down the whole life sewer, she gets to attend a Little Gym Olympics, a Little League game, or a dance recital. Whole life insurance was taking her kids away. Getting the heck out of our painful whole life policies and becoming financially literate brought her children back.
Jim Dahle has already cogently written how whole life insurance is not an investment but a product to be sold, using a rational and thoughtful framework of the facts. I hope that the above has combated the emotional and irrational heuristics that might have duped you or other high-income professionals into buying whole life. If you have already been sold poison, maybe it will emancipate you from continually paying damaging premiums at the expense of building wealth. Just like my friend convinced me into buying whole life, utilizing my own brain with its biases and framing the vivid imagery of my kids’ future, you can use my story (well, technically my wife’s) of how she missed our son’s Little Gym Olympics.
Maybe it doesn’t seem rational to use some random stranger's story of missing some random kid's event, but neither does buying whole life. Many of our other poor financial decisions don't seem rational either. And I just threw a little familiarity bias in there because my wife, just like you, is a doctor and has bled the same blood and has been in the trenches of residency training just like all of us. Just like financial companies use our emotional, reflexive brains against us, I hope you will join us as we spread our painful lesson of buying whole life, and use it as a frame to protect against Wall Street predators to never buy whole life insurance or other hurtful financial products ever again.
Do you have questions about life insurance and what kind of (non-whole life) policies would be the best for you? Hire a WCI-vetted professional to help you sort it out.
What do you think? Have you been pitched whole life or some other unhelpful financial product using the above behavioral biases against you? Do you think you can use behavioral biases to your advantage to protect yourself and others from these financial products and become more financially literate? Comment below.
This is a fantastic article. Instructional, too. Nicely done.
thanks dude 🙂 Just as nicely done as how the insurance company played me!
The title of the article should be. “Whole life is a bad investment”. Not whole life is a scam. Because its not an investment vehicle and it is non-compliant to sell it as an investment vehicle. It is life insurance and either the guy who sold it to you was a bad actor and technically broke the law when selling it to you or you misunderstood his explanation of the product. This article appeals to emotional but is largely financially illiterate when it comes to talking about insurance. However a simple well performing Indexed Universal Life Policy built for producing retirement income would solve your problem with permanent life insurance. Its absolutely a great tool any financially savy person should own.
Nobody says it is an investment. The wiser agents skirt the law by merely implying it. “You can use it for tax-free retirement income” they say. And the unsophisticated buyer here’s “retirement income investment.” Then the agent denies all, “I never said it was an investment.” Okay, whatever.
IUL is a terrible tool and you’re a jerk if you’re selling it to young doctors. Look at the ones sold a decade ago. How’d they do? Not so good, did they. This idea that you can get stock like returns without any potential losses is just bogus. You give up too much for the guarantee.
Whether you are a client or advisor, your concern should be about “practice “ rather than type of products as these insurance products must be in compliance with state laws and regulations and approved for sale by state commissioners!
When clients buy whole life from a mutual company, they are buying a piece of business called” General Account or Enterprise “ and become not only a client as a policyholder but also a shareholder who is entitled to profit or surplus sharing called “dividends “ once every year, though depending on products you may or may not receive dividends in the first couple of years! As a client, mortality charges, sales tax, insurance tax, administrative expenses and surrender charges etc are deducted from your premiums and the balance will be invested in a portfolio structured for the “General account or Entrrprise “, which in general composes investments in Government bonds and investment grade corporate bonds plus a small portion of loans, cash and equity! Bond holders earn interest as income, so your income primary come from 2 sources – bond portfolio interest and mortality experience of the enterprise! As you pay premium into the account and repeat year after year your balance will compound deferred! Do not forget your other duo position as a insurance client, a risk lien to the carrier, especially in early years when your cumulative premiums and cash value are small while net risk is large for the “Account “, your net equity build up is slow which is why after 7 years your cash value amount is less than the premiums you have paid, but this is not the case if your carrier allows to open a PUA account on the policy or have asingle premium or limited pay policies! Buy term and invest difference is usually the argument against whole life but it concerns tax sheltering, compounding, discipline , creditor pursuit of asset and liquidity and strategies for short and long term and holistic financial goals and objectives! Financial security is indeed based on financial wellness driven by a mixed balance of liquidity, free cash flow, and tax and risk management along with short and long term wealth building targets!
Finally, I want to point out and conclude, as a 20+ year veteran in the industry, there’s no “bad” product, there’s only bad “practice “, and less smart “ strategy”!
I agree the main problem is the way they’re sold (and structured). But the truth is that without that there would only be 1/20th as many policies sold, and that puts a lot of people out of a job.
Whether you are a client or advisor, your concern should be about “practice “ rather than type of products as these insurance products must be in compliance with state laws and regulations and approved for sale by state commissioners!
When clients buy whole life from a mutual company, they are buying a piece of business called” General Account or Enterprise “ and become not only a client as a policyholder but also a shareholder who is entitled to profit or surplus sharing called “dividends “ once every year, though depending on products you may or may not receive dividends in the first couple of years! As a client, mortality charges, sales tax, insurance tax, administrative expenses and surrender charges etc are deducted from your premiums and the balance will be invested in a portfolio structured for the “General account or Entrrprise “, which in general composes investments in Government bonds and investment grade corporate bonds plus a small portion of loans, cash and equity! Bond holders earn interest as income, so your income primary come from 2 sources – bond portfolio interest and mortality experience of the enterprise! As you pay premium into the account and repeat year after year your balance will compound deferred! Do not forget your other duo position as a insurance client, a risk lien to the carrier, especially in early years when your cumulative premiums and cash value are small while net risk is large for the “Account “, you net equity build up is slow which is why after 7 years your cash value amount is less than the premiums you have paid, but this is not the case if your carrier allows to open a PUA account on the policy or have a single premium or limited pay policies! It’s not uncommon to structure a blend of term and whole life or other type of permanent products because it’s a good balance between cash flow control and leverage for coverage amount, plus while life is a unique and predictable asset that can offer tax, liquidity, gifting and transfer and creditor pursuit protection benefits and carry certain significant rider options such as WP and LTC etc.
Finally, I want to conclude by pointing out, as a 20+ year veteran in the industry, that there’s no “bad” product, there’s only bad “practice”, or poor “strategy “! In deed financial security must be on achieving holistic financial wellness by aligning adequate protection with cash flow, liquidity, tax, and short and long term financial objectives in a well balanced fashion!
The Indexed Universal Life product is a WORSE product than the whole life!!! With true Whole life the client will have the cash value at the end of their policy where as in the IUL the premiums will get so expensive the client will lose their life insurance and the premiums will eat away the cash value. Cash value policies are the worst products that have ever been sold to the American consumer!! You should never buy any life insurance that has a cash building component to it, the Client is better served with BUYING TERM insurance and INVESTING THE DIFFERENCE you would have paid on the cash value policy in the market!!
What you don’t know is that financial institutions including banks purchase whole life for highly compensated executives … look, these are most sophisticated financiers in the industry and why they pick whole life instead of term or other permanent policies? Let me know if you have never seen the data !
Fred Huang,
Bro, you’re like a trolling billboard advertising all the debunked myths on whole life. Who the heck cares if bank execs get whole life? I’m not a bank executive. Go try to sell your wares elsewhere. Maybe you should hit up a bank exec website. No one here is going to fall for the sales pitch, no matter how passionately you feel about it or how much you’ve been convinced. If you want whole life, go buy some. But just make sure the commission goes to another agent (not to yourself) so we’re all on the same playing field here.
My former financial advisor pitching me permanent life insurance was the incident that led me to White Coat Investor and then Bogleheads back in 2012.
I was single with no dependents and no desire to ever have any offspring going forward. And this scum of the earth dirtbag tries to sell me this garbage product. I was a day or two away from signing the contract when I discovered what I would actually be agreeing to. From a financial standpoint, avoiding this catastrophe was likely the biggest lucky break of my life.
Much thanks to Dr Racela, WCI, Bogleheads, and others who provide educational resources so that professionals who don’t yet know any better are able to steer clear of this abomination.
Mistake number one, life insurance is not an investment. It’s designed not to be. Life insurance is only to protect your investments. If you buy a $500k home and your loan is for 15/30 year, then what you need is a decreasing term. You will out live your term, 99% do. But it ok as long as you know that. You should also get a return of premium rider if you want your money back at the end of your original term. I’ll say it again, life insurance is not an invest. Stop thinking it is.
And yet that’s how it gets sold over and over and over again.
I disagree that you should get a return of premium rider.
https://www.whitecoatinvestor.com/return-of-premium-term-life-insurance-friday-qa-series/
Seriously, it’s like all these agents have never read anything on this site older than a year. Has it really been that long since we’ve published anything on whole life?
Isaac G: re-read my comment and show me where I write the word “investment”. You won’t find it, because it isn’t there.
Now that you mention it though, the Whole Life policy I was being presented was in fact pitched as an investment for all my remaining extra money. As stated above, I had no dependents at the time; I had no use for any life insurance policy whatsoever.
thanks so much and congrats on being smarter than I was! And it turns out, I was pitched this crap in 2012 as well.
Great article, demonstrating the numerous ways that we can be led down the wrong path.
I come from an immigrant family and my uncle who helped us settle down into the United States was a life insurance salesman, and sold me not one, two, three, four or five insurance policies but six whole life insurance policies for myself (multiple) and all my family members including kids.
I blindly trusted someone who I regarded as a mentor and I came to this country as an adolescent.
I’m not sure if he meant something sinister or if he believed his own BS. Anyway, early on, we were depending on him as a family so I don’t hold a grudge. But I think I more than paid back for any help I was rendered with all the commissions that went to him.
Furthermore, I was making so many stupid decisions early on that this was money I was actually forced to sequester and it came in handy when I cashed in policies during the Covid pandemic. So in a weird way, guess I am thankful 🤣
As doctors, especially without guidance and financial education, we are fools just waiting to be separated from our wealth.
I wish everybody on this blog great success and avoidance of future stupid decisions.
They almost always believe it themselves. Few insurance agents get training from anywhere but their own company.
Unfortunately maybe he should have started with term since he had high debt load. Otherwise permanent insurance can be a very effective tool. It is a long term commitment and can be very effective with proper planning. I am surprised you published this one sided article
You’re surprised? First time here? How long have you been following? Try reading some of these:
https://www.whitecoatinvestor.com/what-you-need-to-know-about-whole-life-insurance/
https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
https://www.whitecoatinvestor.com/8-reasons-to-avoid-whole-life-insurance-and-4-reasons-to-consider-it/
I’ve been telling docs to avoid whole life insurance since 2005 and on this blog since 2011. I’m amazed this is the first time you’ve read something about it on WCI.
Actually, I was sold term initially as a resident as I could not afford whole life yet. But even the term I learned was stupidly expensive given it was a “Term to 80” and “convertible to whole life” term policies. This particular insurance company that screwed me sells even inappropriate term life policies in the hope you pay more to to convert to whole life 🙁 The extra few hundred bucks I paid for these expensive term policies could have helped with my debt as a resident, or contributed more to retirement accounts.
Convertible is the only term I would buy.
An almost useless feature for this audience.
Agree.
Well, Doctor. I’m wondering if you have a license to sell insurance or if someone took advantage of you and you just have a bad taste in your mouth, or if you are being paid to write this. Either way, you are way off the mark.
Tax-free access to cash that grows tax-free, and compounds at guaranteed rates is never bad.
There are several ways WL beats IRAs and that is coming from CPA’s and other credentialed and licensed financial professionals.
Bottom line is, if the contract is designed right, you can stuff alot of cash in the backdoor, bypassing the costs of insurance and going straight to the cash value, inside of a tax-shelter’d, creditor protected, lawsuit protected, and spousal protection, savings vehicle. It’s more secure than anything in the stock market because of insolvency risks, see zero losses to market fluctuating… It’s just a solid product. Your just definitely wrong here.
The Rockefellers entire family office and trust, revolves around maxing out life insurance contracts on babies born into the family. And with that they have made 100s of billions.
JCP, McDonald’s, both put millions of dollars in life insurance which they used to survive the great depression. Every major bank has corporately held life insurance as the liquidity backing of their banks. Chase, FNB, USA Bank.
If you went into debt over a life insurance contract I think you yourself didn’t do any due diligence. Either way, the facts are clear. WL insurance from a qualifying mutual insurance company can be highly useful tools, good enough for major banks to use to guarantee solvency. As a licensed professional, I know you are wrong.
Matthew:
“Tax-free access to cash that grows tax-free, and compounds at guaranteed rates is never bad. ”
This is the definition of a Roth IRA. Please feel to show a 10, 20, 30, 40 year period that life insurance guaranteed returns out performed the S&P 500.
“McDonald’s, both put millions of dollars in life insurance which they used to survive the great depression.” McDonald’s was founded in 1940. How can this be possible?
” Every major bank has corporately held life insurance as the liquidity backing of their banks. Chase, FNB, USA Bank. ”
What? Banks do not invest in life insurance and it has no bearing on liquidity.
“The reserve requirement is the total amount of funds a bank must have on hand each night. It is a percentage of the bank’s deposits. The nation’s central bank sets the percentage rate.
In the United States, the Federal Reserve Board of Governors controls the reserve requirement for member banks. The bank can hold the reserve either as cash in its vault or as a deposit at its local Federal Reserve bank.
The reserve requirement applies to commercial banks, savings banks, savings and loan associations, and credit unions. It also pertains to U.S. branches and agencies of foreign banks, Edge Act corporations, and agreement corporations.
How the Reserve Requirement Works
Suppose a bank has $1,000,000 in deposits. Each night, it must hold $100,000 in reserve. That allows it to lend out $900,000. That increases the amount of money in the economy. The loans help businesses expand, families buy homes, and students attend school. Having $100,000 on hand makes sure it has enough to meet withdrawals. Without the reserve requirement, the bank might be tempted to lend all the money out. ”
A bank can require a key man life insurance policy as security on a debt they hold. Lenders loan covenants are very common.
Your stories are just that, stories. Companies used to make money buying peasant policies on their workers. Statistically, they pay the premiums on high risk employees and collect the benefit.
NO company invests in WLI to make money.
Example, Berkshireahathaway has a cash cow in their insurance businesses.
https://www.bhhc.com/#:~:text=BHHC%20is%20a%20group%20of%20six%20insurance%20carriers,Company%20%7C%20Redwood%20Fire%20and%20Casualty%20Insurance%20Company
Companies make money as insurance carriers, not as an investment.
The actuarial science is that the policyholders statistically lose. WLI are a loser for a policy holder. Passing away early is a win for his beneficiaries. The policyholder is a loser on both sides. Dead or could have done better is they survive long enough.
Feel free to provide any support. Smoke!
This comments section is like they’re going through all 30 of the Myths of Whole Life series.
Tim your comments are spot on.. It sounds like this doctor made many mistakes in setting up funding his whole life insurance policy. You are right if paying this premium prevented him from paying that sounds like a mistake he made.
Tax-free access to cash that grows tax-free? You mean like borrowing against your home? Yes, that can be bad. Especially if returns are low, which they are with whole life.
When the guaranteed rates are terrible, they’re bad.
Young docs with student loans aren’t in the same situation as the Rockefellers nor major banks so that’s a silly argument debunked years ago on this site. Is this your first time here?
yeah man, I am the middle comment where I was taken advantage of and left a bad taste in my mouth. There are only a minority of people where whole life would makes sense, probably less than 1% of the population. I definitely was not one of them, given my $360,000 of student loan debt, I don’t have a large farm/estate I was going to give my heirs, I am not a “keyman” in my own company, and none of my children are disabled.
Am I really that off on those appropriate uses?
My father went down this path and bought whole life insurance at the age of 70. His yearly premiums are insane. I tried to talk him out of it. A few years later my father realized he made a mistake and wanted to get out. The salesman convinced him that he had already put x amount in so he would lose all of that money.
With whole life it would be very unusual to lose it all. But losing 25-50% of what you put in if you surrender in the first few years? That’s par for the course.
25-50% of excess of risk costs are missing from the cash value early on you say? Want to guess what the average first year commissions are on these terrible financial instruments?
Don’t need to guess. Typical total commission is 50-110% of the first year’s premium.
WTF!!! Jeremy have your father read the sunken cost fallacy part of my post! Did he get out??? Also, if it is a large sum he lost and his cash value is at least $10,000, and if he is at higher tax brackets during his retirement or still working at high income, then to get out I would 1035 exchange it to low cost variable annuity at Fidelity. That way he can make up that loss tax free like I did. Not that I have any affiliation to Fidelity, but they have the lowest cost VA to do the exchange with the cheapest subaccounts. Just let know man I would love to help out. As doctors, we, as well as the parents who raised, don’t deserve to get screwed like this.
The hubris in this article is overwhelming. The typical Neurologist over-analysis of every aspect of the situation to validate your desperation for everyone to know how “smart” you are, while trying to convince us you were a scarred victim to a heinous crime.
Yes, you got sold an inappropriate life insurance policy. This doesn’t make your previous friend an evil person. Just like Jim Dahle, you want to blame the financial services industry for all the “suffering” in your life. Be grateful for the lessons you’ve learned and forgive. Stop demonizing other professions while holding your own to be superior in all respects. Most of your patients will never get well with your perspective.
Ed, I’ll make you a deal.
When insurance agents stop selling whole life inappropriately, we’ll stop writing about it.
Ed,
Serious question…. who hurt you?
Sounds like some deep rooted issues are at play in your comment and it was filled with typical Ed over-analysis.
I appreciate the author’s thoughtful and informative take on this issue.
Hi Ed, actually I don’t hate or demonize my high school buddy who sold me the policies. I don’t hate the playa, I hate the Game. It was the insurance company that taught my high school friend how to sell products, distort lines between sales/advice, and profit off my stupidity. I like to keep my hubris in my chosen field of neurology where I have dedicated years of my life in something I am passionate about. But I myself am stupid in many other aspects of life, which previously included finance. My first post on WCI focused on the lack of hubris regarding finance: https://www.whitecoatinvestor.com/finsmart/
I don’t blame the insurance industry for all the suffering in my life, just the times of missed moments of family time my wife and I had to keep up with these stupidly exorbitant whole life premiums as mentioned in my post, or the compromising of care I ashamedly was doing to rush through patients to generate enough RVU’s to pay for said premiums.
That is really why I am passionate about financial literacy. Not being financially literate and being sold these terrible products compromises patient care which we as doctors we hold to high esteem. I never thought putting a blind eye to finances would cheapen the quality of care I gave my patients. That I will never forgive the financial industry for, and that is what I demonize.
I haven’t talked to the friend who sold me mine since. Whether that’s just life getting in the way, whether he feels badly about it, or whether I feel badly about it is not clear. I had not talked to him for a year or two before or in the decades since that interaction. It was just the classic summer internship with NML. He didn’t even know enough to know it was a bad deal for me, and neither did I.
I do believe that insurance solutions when used appropriately can benefit the policyholder.. just look at all of those who have to resort to Go Fund Me to bury a loved one…however, as I was reading your long article, my thoughts also went to the poor patient who received an epidural while your wife’s focus was divided and through streaming tears…thank God there were no issues there…imagine that family’s possible loss not the mention your wife’s malpractice lawsuit and reputation loss…
To demean a whole profession because you were duped is a reach. I could write the same article from the prospective of healthcare. It used to be “heal” now it’s “treat.” It used to be “healthcare” now it health “sales.” We are being convinced that we “must” have procedures that we actually don’t need…my point is that unfortunately there are bad players in every profession. So just like we should do our due diligence so that we can advocate for ourselves, you should do the same. Yes, I’m an FA who advocates financial education to empower the client and my preference is to work with DIY clients to guide and make sure they understand all of the moving parts before making retirement income decisions.
I do believe that insurance, when used appropriately can benefit the user.
You should definitely start a blog about healthcare. This isn’t one.
Yikes! If the name is real, I bought my disability policy from this guy’s company/family business following an in-person lecture in residency. Small world. I can’t say they ever tried to sell me whole life but at the time I’d already found WCI and would have quickly shot that down without remembering.
Pro tip; if you’re in the business of selling insurance to doctors, it’s a really really good idea not to attack one this rudely for expressing an opinion from his own personal experience. Thoughtful dialog, constructive criticism, bringing in “alternative facts” is one thing, but this is a bad look. Especially as I’m in the process of considering a term life policy.
I at least appreciate the acknowledgment that it was sold inappropriately. But, all too often it is and the incredibly high surrender rate is one piece of evidence for that. WCI himself in a past article acknowledges there is a place for WLI in certain circumstances, but instead it tends to be residents strapped with hundreds of thousands of student loans and sometimes credit card debt that are targeted the most. Just pointing this out.
Oh shoot man I am so sorry if I led you down the wrong path. So you got sold non-true own occupation disability like I did, so please consider getting true own occ disability like I did when I became financially literate 3 years ago. my health luckily was still the same, and my premiums were actually CHEAPER than the one I got during residency!!! I used Bob Bhayani and Pearson Ravitz right here from the WCI site, and the companies that offer true own occ are Ameritas, Principal (my wife has), Ohio National (I have), Guardian, Standard, and Mass Mutal. also make sure to add partial disability rider +/- COLA and future purchase option riders.
This whole article is irresponsible and inflammatory. In fact, the entire position is borderline childish. First you say you were duped. You weren’t duped. Your advisor listed several reasons that folks purchase life insurance. In your mind, you bought into whichever of those reasons were attractive to you. I’d wager your advisor asked you a few initial questions, then simply regurgitated your answers framed as concerns. You went for it because you were concerned. Then you follow up by saying you focused on the big number, even though your advisor clearly and patiently explained that it was not guaranteed. However, you wanted it, and you went after it. Who pray tell is the greedy one? Anyone with a calculator and a 5th grade ability to use said calculator can discover that the amount of money invested does not, and will not equal the amount of money paid out on any claim. The insurance company is accepting the risk, not you. For every person who buys insurance and doesn’t use it – homeowners, car, phone, etc- there are 10 who do. Whole life insurance pays out exactly 100% of the time, upon death, which is inevitable for all of us. You and only you saw it as a way to create wealth. Ever hear the phrase “ too good to be true?” You bought the whole phrase and didn’t think twice about it when the ink hit the paper. Your life insurance policy is simply leveraging that eventuality of your death should it be untimely and inconvenient for your family. There is nothing more, and nothing less that should be inferred into the contract you signed. In fact, all insurance is simply leverage against risk. That’s right, the entirety of insurance can be summed up in those three simple words- leverage against risk. Yet somehow in this feeble drivel that you float as experience, your advisor was a friend in wolf’s clothing, and whole life insurance is a scam. In fact, according to you, the entire insurance industry is nothing more than a bunch of fat catters and money wranglers who prey upon the stupid and the weak. Your advice to everyone reading this article is don’t be stupid and weak. Shameful. Where is your accountability when flossing these derogatory thoughts as advice? Telling a story about how your wife missed out on a milestone event to gain sympathy over the fact that you viewed yourselves as insurance poor? And you were duped? Come on, man. Do you even realize how many families you are screwing by soapboxing this terrible, horrible advice? You should review your article, pick up a dictionary and learn what a fiduciary is and does. Then, once you have realized the asinine assumptions that are in your post are actually the ramblings of an obtuse little brat whose experiences did not fit the arrogance of your imagined narrative, you can do the right thing by removing this post, apologizing for your boorish behaviors and normalize refraining from trashing things you do not understand. The fact is, you put together a few fancy words to describe an experience that did not play out the way you imagined it would. Then you pointed every finger you own at others by painting a slanderous picture of the experience. Go get a mirror and use it. Everyone needs life insurance because as Tennessee Williams once said, “ It costs money to die. “ You call yourself a neurologist, it is time to begin acting like one.
Kurt – while I could respond to much of the ad hominem attack you leveraged against Dr. Racela, I will instead focus on your next to last statement “everyone needs life insurance”. This is blatantly not true. My 70+ year old parents do not need life insurance – not only do they have enough wealth to cover “the cost of dying”, their 3 children are all financially independent and could handle those costs if they didn’t. My sister’s newborn does not need life insurance. My children do not need life insurance – they do not provide any income that needs to be replaced nor do they have debt. I do not need life insurance- I have no debt, no one relies on my income, and as mentioned I have enough money to pay for medical bills, funeral costs, etc.
I find it interesting that these blog articles inspire such vitriol from people who (I assume) are selling this product. Submit your own article that explains why I should buy this rather than trying to belittle someone with an opposing view. I am sure Dr. Dahle would publish it if it meets the guest post criteria.
Sounds like it would be a Pro/Con post to me and by the time the Con part is written, very few agents would be willing to put their name on it.
Point taken, but it at least that would be a respectful point/counterpoint rather than a barrage of insults that are hurled at the author by these insurance “professionals”.
It still surprises me that with so many physicians on this blog with similar stories about the methods used to convince them to buy this product there are still lurkers who feel the need to post to try to discredit people trying to share their experience so others don’t blindly buy something they don’t need or understand. I, for one, appreciate this financial peer review – we often learn more from mistakes than successes.
It’s like none of the agents knew that most policies sold to young docs are sold inappropriately. Here’s a large sample I’ve collected over years:
https://forum.whitecoatinvestor.com/insurance/1728-inappropriate-whole-life-policy-of-the-week
You are correct. Life insurance (in it’s many current forms term, whole, UL, VUL, IUL) is not for everyone and every situation. Understanding the financial industries vast amount of products helps everyone who is looking to protect their assets, income, and health. Depending on the view’s and desires of the individual may mean that a 70 year or a new born would need life insurance to accomplish many different goals. And being single with no desire for children just means you better take care of your money because it will be the only thing to take care of you when you are older. But the unexpected does happen in life. That is why we have life insurance. A new born can develop adolescent illnesses and become uninsurable. And as a parent, should something tragic happen to your child, the last thing you want to deal with is paying bills and earning your paycheck for a period of time. That coverage can help you take the time to heal some.
I think there was just a lack of education, not malice. Just as being a physician, if not all the facts are presented, then the recommendations can be off as well. I’m not saying everyone is honest in the financial industry, but I don’t think there is any industry that can claim that they are free of misleading folks. That is the reason for malpractice insurance right. People sue because of a failure, they feel, on the side of the medical profession or professional. The financial industry also has Errors and Omissions insurance that every licensed financial professional must carry.
Having a designation of CFP or MD doesn’t mean they get a pass for having all the right answers. But disparaging a financial product (in this case, whole life policy), and the entire financial industry, really is short sighted. I’m not fully shocked though, with so many sites attacking the medical industry for many of same issues.
Just because you can find someone for whom it’s right doesn’t excuse the mass selling of it to new docs for whom it is almost certainly wrong.
I am an investment advisor and have not recommend whole life to any of my physician clients (more modern solutions that work better for them anyways), so I think the mass selling is dependent on who in the industry you talk to. I am a huge perpnent of suitability to ensure the right solution for each client.
I’m trying to decide whether to delete this comment because it is ad hominem or leave it because it illustrates so well to blog readers the mentality of those they are up against. I think I’ll leave it.
Your comment says a whole lot more about you and your industry than the post or its author.
Ok. I’ll bite. Ad hominem, and not defense of industry or personal income stream motivated.:
There is a need for everyone to have life insurance. One poster mentioned an infant child. Who pays for the funeral or the counseling befitting of such a tragedy? Granted that self funding is an option, for those with means, as one poster stated. Some would rather invest in peace of mind, knowing the big check is already signed when needed. Just like long term care expenses, there is no magic number when it comes to how much life insurance is needed. It is as unique as the individual. Separate from long term care, which can also be self funded , although not recommended for anyone with less than 1.5 million liquid, life insurance is a necessary aspect of any sound portfolio because death and the expenses surrounding it are inevitable. Even the poster who mentioned that there is no one who relies on his income will have expenses associated with his death. His parents will too.
The transference of assets that was touched on in one of the threads is also misguided mentally. Transferring ownership of a house or a boat transfers all of the liabilities and tax implications therein. If the recipient is not equipped to handle those newfound responsibilities, who has been helped? Intend to transfer cash? Same. Securities? Same. Artwork? Same. Bullion? A Ferrari GTO sitting in the garage? You get the picture. Life insurance allows the investor to transfer cash by way of no tax liability to the beneficiary. There is no need to liquidate or harvest the asset because it is already cash. It does not require reporting for income by the beneficiary like a cash transfer would. I wouldn’t call it a tax free payout, because it is typically funded by already taxed funds. Although, it is an injection of cash when it is presumably needed the most.
The only swindling I see in the original article as written, is that it seems as if the advisor did not take enough time or consideration when determining his client’s needs and offering a suitable recommendation . This should not be an indictment of the need or the industry.
A term ladder with a strategy to expire once mortgages, college tuitions and other various financial concerns and obligations have been dealt with , coupled with a reasonable whole life death benefit would have been a far more sound, and financially viable approach to the author’s needs. Piling all of those concerns into one large whole life basket makes as much sense as putting it all on red at the casino. The one basket theory has the very real effect of shackling you to those premiums because you are trying to solve various needs and perils by bundling them into one solution. One term policy for the value of the mortgage, set to expire in or about the same time as the mortgage is paid off is sufficient coverage for that asset. Keep in mind this would need to be readdressed if you intend to refinance the mortgage or change residences. 1.3 times the average current tuition expense at the institution of your liking, set to expire on or about the child’s age 25, is sufficient coverage for that asset; so on and so forth.
Then you look into whole life for average costs of a funeral or cremation, whichever flavor suits. Pair that with survivor benefits such as how much the spouse needs to have in hand to replace the lost income and navigate those needs with dignity. You don’t need to cover the mortgage with whole life, because it is already covered by the term program. What you are covering is the spouse’s needs when dealing with the aspects of becoming a widow. Use the whole life to cover immediate expense needs like a few years worth of income and the funeral expense. Anything more in whole life is just fluff, but what are fixed needs such as those two factors of funeral and survivorship are what a whole life vehicle should be used for. For some, that figure can be as low as $10-12000. The spouse doesn’t need my income. The house gets paid and the tuitions are covered from the term policies that were laddered, therefore you don’t need a large whole policy. However if the spouse would clearly suffer if your income was suddenly halted, or has little to no understanding of how the household is organized and the assets are arranged, you may want to think about stipulating those needs into a whole life contract that guarantees a life lasting payout rather than a payout that expires once aged.
This is far more sensible in my opinion, and without doing the math, a far more economical option that addresses the needs appropriately. This also allows for the investor types to strategize for returns and interest because their money isn’t locked up in a poorly suited program.
Perhaps the investor was speaking with the wrong advisor. Perhaps the advisor doesn’t understand how to appropriately address their client’s needs. None of that changes the necessity for asset protection. How consumers choose to protect those assets is a more in depth conversation, and it seems as if that conversation did not take place between the advisor and the client. To call that a scam, or to trash an entire industry for it is obscene. I stand by my original comments, because the investor is not realizing or accounting for the role they play in all of this. It’s your stuff. You chose to pay someone else to manage it for you and did not challenge their responses or recommendations. Whether ignorance or nefarious intent was the final place of blame is irrelevant. You went out with an advisor, and when you realized the advisor didn’t float your boat, you broke up with them. That alone is laudable. However, now you’re running around town badmouthing the person you just broke up with. That is kind of creepy.
Kurt, From your post, sounds like you’ve spent a career pushing whole life insurance. Do you in fact sell whole life insurance?
If I’m being honest, Dr. R was a bit hyperbolic. Especially the part about his spouse missing son’s gym olympics. I rolled my eyes at that part. Come on Dr. R, I’m sure you live well above the average American standard of living even with a big whole life policy. If anything, you really should blame your and your wife’s own MD career choice and/or spending priorities for that, not your CFP. When I’m driving in for an OR case in the middle of the night, I don’t blame anyone but myself.
BUT as a fellow doc who was inappropriately sold whole life insurance, I totally agree with the the overarching theme of this post. I ambushed my CFP with a million questions on the policy I was sold. My favorite question to ask was, “How come you didn’t disclose the commission you made when you sold me the policy?” Defensively, he told that he himself owns 5 million dollars in whole life insurance. I told him I’d consider buying another policy if I could also keep my own commission on the sale. Of course, he said no. Then I fired him. And Kurt, I’d fire you too for the misguided vitriol posted above.
Thank you WCI for saving my bacon over and over and over again.
Pat,
Sounds like you don’t read very well. If you care to reread the post- no I’m not pushing anything, nor have I spent a lifetime pushing insurance products as you assume. You see, that’s the problem with you ‘high income earners’ as you felt necessary to point out. For whatever reason, ( whatever because I don’t really care) high earners equate their salary with superior intellect. Yet they continually make poor choices when it comes to managing finances. In fact I did not , and still would not recommend a large whole life policy for anyone, regardless of income. It is a nonsensical solution that rarely aligns with the narrative. Stop assuming , get out of your own way and read a little closer before thinking you ‘know’. Probably the same reason you bought into a program that didn’t suit your needs. I’m glad you’d fire me. You are assuming that I would want to work with you. Narcissism in its finest form.
Pat, I do apologize. I mistakenly identified you as making the high income statement when it was in fact the moderator of this post who deserves the credit. I am sorry for the error, it was not deliberate. I still won’t be working with you , which is a relief.
Kurt, I’m laughing because you never clearly answered my very easy question (typical for salesman). Your answer is contaminated with obfuscation words like “large” and “pushing”.
I may or may not have superior intellect. That’s irrelevant. But I do believe I have a superior conclusion based on my conflict free analysis of the data on whole life insurance.
Do you, in fact, sell whole life insurance? Yes or No
Hi Pat, I agree with you yes! my wife’s example was hyperbolic, but I use it to frame how bad whole life is and why you should be financially literate in general. It wasn’t just the whole life premiums, but rather the lack of financial literacy that contributed to my wife missing Jackson’s Little Gym Olympics. But the way I painted it and using framing bias, I bet readers will never buy whole life unless they are the few that it is appropriate, and become financially literate in general.
And I hope you noted that I am fighting hyperbolia with hyperbolia. My buddy sold me whole life as “the greatest/largest gift you can ever give your children upon your death.” If I had known or heard stories of a hard working doctor missing her son’s Little Gym Olympics because they had been suckered into buying whole, I would definitely not have bought the policy!
Your comment is as long as the original article. Like most whole life policies sold, this doc was sold a whole life policy inappropriately.
The audience for this site is high income professionals. They don’t need to insure their kids in order to cover burial costs. They make enough in a month to do so.
Whole life is optional, at best, for almost all of my audience. It’s completely wrong for the vast majority of docs under 40. They have far better uses for their money.
Kurt,
“Transferring ownership of a house or a boat transfers all of the liabilities and tax implications therein. If the recipient is not equipped to handle those newfound responsibilities, who has been helped? Intend to transfer cash? Same. Securities? Same. Artwork? Same. Bullion? A Ferrari GTO sitting in the garage? You get the picture. Life insurance allows the investor to transfer cash by way of no tax liability to the beneficiary. There is no need to liquidate or harvest the asset because it is already cash. It does not require reporting for income by the beneficiary like a cash transfer would.”
OK. No ad hominem. I will assume you mean well but are hopelessly confused as to how any of this works.
If you give money to someone else, they do not report it as income. It is just that simple. If Warren Buffett ever responds to my pleas and gives me a billion dollars I will report exactly zero to the IRS. It is not taxable.
Income I might earn on the money once I have it could be taxable, depending in how it is invested. This is the same as for a life insurance death benefit.
When I get that money from Buffett, I will have no liabilities associated with it. Again, exactly zero. Same for securities.
I do not have any life insurance to cover my funeral expenses. I don’t need it. My heirs will have inherited my assets and the is enough money to cover a funeral.
My spouse would not need any additional money to cover living expenses. In part because we did not purchase whole life, we have enough money to retire. Since we do not rely on my earned income, there is no reason to pay to replace it.
If one of my kids were to predecease me, that would be a tragedy but it would not be a financial loss. I do not need insurance on their lives to make me whole. Nothing would make me whole emotionally and their loss would not create any financial obligations.
If you learn more about it, you will realize that most of the scenarios you list do not indicate any need for life insurance.
I say keep the comment Jim! Huge amount of learning here.
Ad hominem attacks don’t bother me.
The $50,000 loss after 7 years into “investing” in whole life hurts much more, and I don’t even want to think about the opportunity cost of those premiums. Like mentioned above, I could have been student loan debt free 🙁
Kurt, thanks for your perfect response to the poor poor Dr . I was going to spend an hour typing basically the same thing, so thank you. I don’t think I’ve ever been as mad at an article as I am at this one. Pure narcissism and hubris.
“You bought the whole phrase and didn’t think twice about it when the ink hit the paper.”
Classic defense that completely disregards the sales justifications that relied on “trust” and “fiduciary” ethics of the CFP .
All is fair. It is “fair” to point out the closing tactics of a salesman. Not actions of a friend nor a “fiduciary”. All is fair, you signed it. Right? It is a money maker for the salesman. Pure and simple.
Not personal, just the rationalization that you are helping people is comical.
I have zero against insurance agents that pursue adequately insuring their client’s personal needs. I have zero tolerance for misuse of trust and misdirection for personal gain of the agent. There are good and bad people in every business.
Well stated and you are exactly correct in your analysis of the article.
Any person should get life insurance with living benefits that pays out should the insured become chronically, critically or terminally ill. So let’s say a healthy doctor age 40 slips on a rug in his home. He hits his head on a door and becomes paralyzed. For an example if he had a million dollar policy at a minimum he could get accelerated 75% of his death benefit or 750k while still living. So traditional life insurance is for the beneficiary but life insurance with Living Benefits is also for the living. Not only that but the proceeds are tax free. $212.52 is what the monthly premiums would be for a healthy male, non smoker, living in Louisiana for a million dollar policy from a carrier that’s been around since before the Civil War and before the 1849 Goldrush. That’s based on a thirty year term policy. So back to our 40 year old male. Let’s say he gets insured and pays one month on his policy or $212.52 and gets paralyzed and can’t work and won’t be able to work at his profession. We’ll because he had the term policy he can get advanced 250k, 500k 750k or whatever amount he chooses and it’s tax free. Not a bad return of investment vs. being paralyzed and having additional medical costs and the inability to work to provide for his family or himself.
[Solicitation of business deleted.]
I disagree. That’s what disability and health insurance are for. Classic sales-speak. It’s even funnier that you left your phone number at the end and tried to solicit business! Yes, I deleted that. No, we won’t sell you an ad because we think you’re doing clients a disservice with that belief about the necessity of permanent life insurance.
The article and many of the respondents overlook (3) key factors which make whole life a viable and valuable asset. First, it provides an affordable PERMANENT DEATH BENEFIT for any healthy individual IF PURCHASED EARLY—preferably before age 25. Insurance companies pay out less than 3% of death claims on Term Insurance—their actuaries know most people will outlive their term policies hence making term products a cash cow for them. Secondly, Whole Life detractors champion the risk-laden strategy of buy term (protection) and invest (speculate) the difference—a strategy which is not insulated very well to deal with the ravages of market volatility—once people realize their taxable investment returns did not meet expectations, they are usually to old to acquire sensible life insurance. Thirdly, Whole Life inusrance is a “wealth generating tool” — proceeds from Whole Life policies can be used to purchase new WL policies on newborns and children—-hence within a generation (perhaps two)—-signficant wealth can be accumulated for families or philantrophy—tax free of course. Remember, Whole Life is very much a part of the principle—-you get what you pay for. Here what one is paying for is not just insurance, but assurance. A guarantee.
It might not be 100% that a doctor buying a whole life insurance policy prior to age 25 is a mistake, but it certainly rounds there.
You’re making all the classic arguments for it that have been debunked here dozens of times over the years. No point in rehashing them here, but should some innocent reader think you know what you’re talking about, I’ll refer them here:
https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
Couldn’t have said it better. Life insurance has helped countless families keep a roof over their head in the event of death. I’m sure if the author had suddenly lost his life he would be grateful that his wife could afford to keep their home and continue to support their family.
Don’t need whole life to meet that need. Term works just fine. Buy it early, buy a lot of it, make sure it will last as long as you need it to, and skip the whole life in favor of a better use for your money.
Hey JY, for the first point, I do not need a permanent death benefit. Should have just used my money to pay off my student loan debt, or just blown the money and enjoyed it. losing $50,000 after 7 years of this “investment” just to have a permanent death benefit that I could not sustain anyway, was just money down the drain.
Second, the risk laden strategy of buy term and invest the rest pales in comparison to the risk I took on trying to sustain $28,000 of whole life premiums for the next 34 years (I bought the policy at age 31 and it was a paid up at 65 policy). Financial “advisors” who sell whole life don’t mention that risk, and it screwed me and my wife. If I had bought term and invested the rest, I would not have ended up in $31,000 of credit card debt to keep paying the $28,000 yearly premiums.
Third, I actually do not want to build generational wealth and I want to be like that dude who wrote “Die with Zero.” Even if I did, investing in taxable gets a step up in basis at my death, and my Roth money is also tax free. Better than saddling my kids or grandkids with possible future premium obligations by buying whole life policies on them.
This is a terrible article, eloquently written, based on the opinion of someone who has buyer’s remorse from being talked into a $28,000 annual premium without stating any figures of how much coverage, the accumulated cash value, age you started it, what type of whole policy it was, and a numbe of other things that made this laughable halfway through.
Sounds like your bad with finance and don’t research much. Your cell phone, car, home and even the bank you have (FDIC) are all insured to avoid loss. Your wife had to miss a little league game because you selected an expensive policy??? Maybe he sold you on the investment concept, but you should be competent enough to understand how interest accrues when placing your dollar anywhere, Doctor lol. A $28,000 policy in whole life annually, I know you have mortgage, debt, college expense, hospital indemnity, cancer protection, kids life insurance in excess of $250k, a face amount of at least $1M for you and the wife, and hopefully a paid up option at 65. If not, this is even more laughable and I’d love for you to get further into the pschology of how the recession and other things were pain points that induced you to buy. My advice: stop writing yourself prescriptions.
Another ad hominem attack worth leaving because it says more about the commenter and his industry than the author and the subject.
Funny… “stop writing scripts to yourself”. But seriously, what happened to due diligence? Unfortunately there are just as many bad physicians as there are financial professionals. The 3rd leading reason for deaths in this country is medical malpractice. https://pubmed.ncbi.nlm.nih.gov/28186008/ That doesn’t mean I make it my mission to trash the health industry, it drives me to do more due diligence with whom I choose to treat me. Can we all agree that financial products are made for certain reasons and fill certain gaps? Isnt this similar to medicine? If I was wrongfully hurt by a doctor, I’ll go the appropriate board, perhaps that should have been do here, instead of tearing down a product or a profession. I doubt this will stay on here for long, but maybe it will. Don’t give up on your search for the truth and please consider that one financial product doesn’t fit all, just like one drug doesn’t either. Good luck to all reading this
Nice try on the subject change. I guess when you can’t defend the practice you can try to distract from it.
“ Can we all agree that financial products are made for certain reasons and fill certain gaps? Isnt this similar to medicine?”
Can we agree? Sure. Insurance (particularly on the Forum) is strongly supported, recommended and promoted. LTDI, malpractice, term life, home, auto, umbrella, business interruption and health just to mention a few. Even WLI MIGHT be needed.
The vast majority of WLI policies are not sold to fill a gap is the point of contention.
Define the “gap” where WLI is needed or even marginally optional.
The WLI policy is the issue, it is sold when better options are available.
We can agree if you define the gap. You just blew by it and trashed the docs in Pa with the article! However, that is why doc’s carry malpractice. Insurance has a place, there is agreement. Just the WLI is sold as an investment vehicle. Most docs don’t need it, better alternatives.
Fill in the “gap” definition. No need to bring in medicine.
WLI is sold for the production numbers of the agent that vast majority of the time. Not to fill a specific undefined “gap”.
DA, I appreciate the eloquently written (I consider myself a doctor first and just getting into this columnist thing, my high school English teacher would be proud!) and yes, I agree with you, I should have done more due diligence. But I didn’t because as a doctor, and my wife as a doc, though we didn’t need too and dedicate all our time and energy to helping others. Before I was sold whole life, I had thought that any time deviated from talking with my patients and reading up in journals the latest treatments, like learning finance, would make me a worse doctor. I was shocked how because I didn’t due financial due diligence, and instead focused on my patients for hours and hours, I was sold whole life, went into $31,000 of credit card debt, and started RUSHING through my patient to generate more money to get our of financial trouble.
I trusted my high school buddy to help me, but the financial industry taught him to screw, sell, and not optimize and help 🙁 Believe it or not, he was a CFP, and I was fooled into believe the fiduciary standard of the CFP was enforced like the MD.
I was not competent back then about finances because I chose to because I am a doctor. But now I am because not being financially illiterate and buying whole life made me a worse doctor. I am incredibly ashamed to compromise the care of my patients to pay for stupid whole life, and I want other doctors not to cheapen their chosen profession like the financial industry did to me.
In the industry doctors are known to be financially illiterate, however the name of the product is life insurance. Even a financially illiterate doctor should recognize its insurance first and an after tax savings product second. You have 70K of credit card debt because you spend too much. Not because you didn’t buy a speculative investment.
Likely about now you broke even in your policy and can take your cash and run. Had the market crash you would be thanking your buddy for providing you a safe haven. Once peiple max out their 401K annually they have limited tax differed investments for extra cash. Life insurance can be beneficial as a in buying out a partner that passed too soon, also with loan provisions it’s similar to a Roth with withdrawals. At the end if the say your mad the market did well, exposing the low rate of a guaranteed product, and you spent too much on your credit cards. All you life problems aren’t because you purchased life insurance that works as a forced savings. Considering your spending issues it seems you can use a forced saving product.
Next we should discuss how doctors push certain meds on clients for their own financial profitability based on what pharmaceutical reps recommend. Those decisions waste people’s money and risk their lives sometimes. Your friend just forced you to save some money. You probably should stop cutting him down. You purchased with your own free will with all the facts on paper in front of you. At least you were forced to put something in your mouth that can harm you years later all because it’s the new drug a pharmaceutical rep pushed that financially benefitted the doctor that wrote it. Seems like Dr’s need a higher standard to follow.
Classic life insurance salestalk mixed with the usual ad hominem attacks against anyone who doesn’t think whole life insurance is the best thing since sliced bread.
As far as docs, I suggest you start a blog all about it and fix health care. Good luck.
Jim,
How many insurance salesmen have signed up for your emails? I guess there is no way to really know. I imagine that’s how they are so quick to respond in these comment sections. Either that or there is some whole life insurance “bat signal” that goes up when an article like this is posted. Ahem, social media.
It never seems to take much time for these replies to show up. Really they are kinda fun to follow. As tragic as docs getting sold these uniformly terrible “products” is, I love seeing the desperate attempts of these salesmen trying to defend their most precious of income streams. It certainly highlights the tragedy that is “whole life sales tactics”. I, like probably most physicians, have been pitched whole life several times over my career. It started when I was a resident at the benefits fair at the hospital and the pitch sounded good. I signed up but when I got home I quickly researched what it was I signed up for and realized thankfully that I didn’t need this at all. I was able to cancel it, and it provided a valuable lesson. I still get emails from one “friend” who is interested in helping me with my permanent insurance needs (of which there are none). I have been even pitched by two patients who wanted to sell me these insurance products. Quite awkward. I expect that I will continue to get pitched these “unique opportunities to secure my future” over the next several years/decades. Thank you for posting these articles for continued edification of financial knowledge and reminding us of the pitfalls that exist.
Yes, I blindly trusted my high school buddy was a CFP without doing any due diligence. It is my fault for not looking into this, but I just wanted to focus on medicine and treating my patients. I really don’t blame my buddy, but I blame the industry who takes advantage of this knowledge that doctors are too dedicated to their patients that they won’t even think that hey, it says whole life INSURANCE, so no way it could be an investment. BTW, my buddy did say even though it says whole life insurance, it can be used as an INVESTMENT.
I didn’t know drug companies paid doctors to prescribe their meds . At least, not anymore. Sometimes I got a sandwich pre-COVID.
And yes, I got sold a universal life policy in 2008 that was not a good idea but fortunately was maxing out all of the other retirement saving vehicles and only paid the premium for one year, so I let it sit while deciding what to do with it, then used it for a 1035 exchange for a long term care policy. (That we probably won’t need, but helps me sleep better at night). I regretted the purchase, but at least in the end didn’t totally derail our journey to financial independence.
Reads like there are commenters with buyers remorse and insurance salepeople defending their livelihoods. I’m in the buyers remorse camp. I cancelled my MIL’s policy 8 years in after reviewing it and seeing how it was better to pay surrender charges and invest the future premiums in other investments. The expected returns investing future dollars elsewhere were far better than continuing the policy. Although too dramatic, I agree with the author’s position on whole life. You can easily piece together a portfolio of index fund investments and term life insurance that gets you more for your money than whole life. And I’ve learned not to argue with life insurance salemen and it’s like a war of politics when you talk to them about it.
Insurance is a bad bet (e.g. like going to the casio and the insurance company is the house). Whole life is designed to be profitable for the insurance company just like their other products. I personally find alternatives when possible. There are some cases where I must buy it by law (e.g. auto liability) and other cases, I don’t really have a choice (e.g. health insurance where it is 80% subsidized by employer and I don’t have the option to take that money and find my own health insurance). But for optional insurance, I either take the cheapest option that gives me the closest to what I really need (e.g. catastropic loss of home, so I pick the $10k deductible) or self-insure (e.g. Become FI so I don’t pay for LTC insurance since IMO, it’s about as bad as whole life from an expected value standpoint).
A fool and their money are soon parted. Don’t be a fool and educate yourself, like the author of this post is advising. Don’t be a fool when going to the casino and don’t be a fool when buying insurance.
thanks man yeah I really hope other doctors learn not to be like me and buy whole life inappropriately, and to be financially literate in general so finances don’t compromise the care you give patients.
Sounds like whole life insurance is incredibly expensive. I feel bad for anyone who commits to such huge cash flow burdens. This seems lie it’s just an expensive debt product dressed up as an insurance product. Imagine a car loan salesman talking about the “guaranteed cash value” of that exotic car some years from now. Except most car loans have a term of a few years instead of a few decades.
A young dual physician couple can get millions – yes, with an “s” at the end” – of dollars of term life insurance for a couple hundred bucks a month. You can do whatever you want with the extra $25k per year. Some posters here seem to think that investment in the stock market is too volatile for their financial plans. That’s a personal decision, but be careful you’re not confusing volatility with risk. If you’re really averse to volatility you could put your extra $25k a year in a checking account and still come out ahead of the cash value of whole life insurance, even though a checking account is not the best vehicle for long terms savings due to poor growth from low interest the and erosive effects of inflation.
Life insurance is much more valuable to a family earlier in their career with low net worth (and high debt) and decades of potential earnings to insure. Eventually, when you become financially stable you can just drop the insurance and self-insure with your own net worth. In a 2-income couple, you may not need as much life insurance because a surviving partner can care for the family on one high income, if it comes to that. Just make sure you have enough in aggregate to provide for the kids if you’re unfortunate enough to both pass in the same accident.
How long do you expect to need life insurance? It seems that it would be very unusual for a high earning family with a reasonable savings rate to need an insurance company to “pay them to die” in their ripe old age. We expect to see some value in continuing to hold life insurance for about 12 years out of residency. I think that dropping our life insurance will be our next big financial milestone now that we have our student loans paid off.
Ultimately your choices about life insurance should be part of a thoughtful financial plan that includes contingencies for major events like death, disability, burnout, career changes, increased caregiving responsibilities (eg for sick or elderly family), and so forth.
You might be ahead for a decade or so with that checking account, but eventually the whole life policy will break even and outperform the checking account. They’re poor investments but they’re not THAT bad.
A young, healthy woman in her 20s can get a million bucks in 30 year level term for $500-800 per year.
Today was my 1st time ever seeing this site and frankly I am appalled (also a little entertained.) I wish had not taken the time to read this anecdote, also I read your “myths” part 1 through part 6 and its comical how inaccurate this content is. as a licensed insurance broker in a half dozen states. I help folks find the coverage that fit their needs and goals. for some that’s term for some its whole and for some it is universal for others its not life insurance they need but rather financial insurance ( like a private pension AKA an annuity) the thing that gets me fried up about this site is that you are slandering an industry you depend on and you do it with false equivalencies and blatant contradiction’s i.e. the very 1st paragraph of part1 https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/ you describe a possibly accurate depiction of what the compensation for a policy could be ($20k to $44K) but then wrap that up with the average annual income an agent being $52k! Do your readers believe that a person making $52k a year is doing so by writing 1-2 polices a year? seriously do your readers believe that? Life insurance should never be sold as an Investment, its not its an aleatory contract. Each type of coverage exists for a reason and should your “why” depict a specific need then that’s that lookup any life insurance buyers guide ( which is usually also included in your “entire policy”). Based on some of the information provided here and in your “myths” series its clear that you are no different than your patients that do “their own research” here is an Idea you can throw away as fast as you read it. spend the $50-$200 “invest” the 40-80 ours into a life, health, annuities pre-licensing course to actually understand how these products really work and how they are regulated. Some of the things posted on this site are materially false: of the dozens of carriers I have been appointed by- none pay me more for whole life! term is highest paying product because the people out live their polices or change them to WHOLE life as they get older and are concerned they might out live their term policy and not qualify later in life… others have commented that they can get multi Million dollar term polices for hundreds of dollars per year… PROVE IT! and don’t be cute with ART, 5-or 10 year term policy. Those are marketing products so advertisers can say those things legally. imagine a 30yo get a 10 year term policy and then develops XYZIDK CANCER what do think their rates will be to renew or even get new coverage. Most of the brokers, and agents I know, focus on who is being protected and what people qualify for. Term is the hardest to get ( especially for folks over 60) you have to be reasonably healthy no history of cancer or circulatory issues to qualify for a reasonable rate or at all in many cases. PROVE ME WRONG!
A high income professional has screwed up pretty badly if he or she isn’t financially independent before age 60. Once you’re financially independent, in the vast majority of cases you don’t have a need for life insurance.
Do you really need me to teach you what the premiums are on a term life policy? I thought you were licensed in 6 states. Surely you know how to look up a quote, no? Try term4sale.com if you need some help. It’ll only take 30 seconds to price out a policy on a healthy 30 year old.
Wow! What a rant.
I seriously doubt that many readers of this site have any reason to keep their term insurance at 60, let alone buy a policy at that age.
On the other hand, the only 30 year olds who should be buying 10 year policies are those who expect to be financially independent at 40. There are a reasonable proportion of the readers of this site who fit that description. Most probably have saved beyond the need for life insurance by the time they are 50.
One could ask you to prove that whole life is appropriate for more than a tiny fraction of people who need coverage.
I enjoyed the article. Sadly, I bought my universal life policy long before I found Bogleheads or WCI. In fact, I was done with the 10-year pay in by the time I joined WCI. It was no hardship to pay it as I was making a bunch of money but given that the money would otherwise have gone into VTI (less whatever the low term life premiums would have been) it still stings. Every once in a while I recalculate the value if the money had gone in to VTI and compare it to the current ‘value’ of the policy. Ouch. It does help me to illustrate to students and residents who ask about financial matters why this is not something they should be wasting their money on. And this is high on my list of ‘pearls’ on personal finance. I still tell the agent that this is by far the worst ‘investment’ I ever made but I am sure that it is just water off a duck’s back.
hey dude, sounds like it was just opportunity cost that affected you with the policy. At least you didn’t rush through patients, get into credit card debt, and have your wife want to kill you because she missed her children’s life events like me! Awesome man that you are trying to teach other future docs too. definitely they don’t deserve to be screwed like we were.
One would think that if these scammy products were actually good, there wouldn’t be an army of commenters frothing at the mouth defending them each time some legitimate criticism shows up somewhere on the internet. I don’t hang out all day losing my mind trying to extol the virtues of EBM on a homeopath forum. A certain famous quote from Hamlet comes to mind…
While there are many bad life insurance products, when structured correctly whole life can indeed be a good idea for many people.
Correctly structured whole life policy’s take around 10 years to actually be profitable, but if you can pay your premiums for that amount of time, you will get the death benefit for free. And the cash value can be borrowed against tax free for any purchase you may need, at an interest rate less than the dividends you receive for the policy.
All of this needs to be taken into account when you decide to purchase the policy. It is a good idea for most people to start small and if you think the product is beneficial you can always buy another policy in the future.
I’m sorry you had a bad advisor who I suspect didn’t structure your policy correctly and was probably just trying to land a big commission. Unfortunately this happens all the time with many financial products.
Death benefit “for free” huh? That’s salesman talk. Matt, I bet you sell whole life insurance too. Do you?
It’s a good idea for most people not to start small, but not to buy at all. Death benefit “for free”. Sheesh. Do you actually believe what comes out of your mouth when pawning this product on folks? I’m amazed how many agents seem to be reading this blog today. Do you guys not understand that you are not the target audience of this blog, you’re the subject?
I wonder if you feel this strongly about the 403b most doctors have as a retirement plan?
If it’s a good 403b I have zero problem with it.
So you know the ins and outs on how those work?
hey Matt, seems that whole life would really be appropriate in a few niche circumstances which don’t fit me: I don’t have a large farm/estate I was going to give my heirs, I am not a “keyman” in my own company, and none of my children are disabled.
Really no other reasons to buy permanent life insurance as other investment vehicles would do better.
If these contracts are so beneficial, why are they cancelled at such an alarming rate. When I bought mine, my agent was very effective at selling the product, but very poor in compelling me to keep it beyond the first two years. Possibly because I was far more informed at that time and possibly realized he sold me an inappropriate product. It’s as though the industry doesn’t care for the high cancellation rate, which begs another question, why?
The product is so overwhelmingly complicated its amazing anyone every buys it. In my case it was ignorance and trust. Worst financial mistake I made, but the lesson was invaluable. Made me take ownership of my personal financial situation and has benefited me for the past 8 years.
awesome! good you got out sooner than I did!
Doc, you’re a genius in your own right, but please keep to medicine. You’re not a financial professional and I’m frankly offended that you feel qualified to give financial advice. Also do you don’t you find it slightly ironic insurance companies are the folks actually paying your what I assume to be a salary that far exceeds most insurance sales people? You’re entitled to your opinion but it’s just that, opinion. As with anything you purchase if you don’t understand it, have unrealistic expectations (which seems to be the case), and do not have the patience to grapple with a long time horizon, you’re going to be disappointed.
Ill be sure to give my surgeon advice on my next operation and see how he or she feels about it. Good luck.
You should probably stop reading this blog so you don’t get offended any more.
The insurance agents we accept advertising dollars from sell VERY little whole life. If I were getting reports from the audience that they were pitching whole life to them they’d be gone from the list. They’re all very well aware of that I assure you.
I’m not anti-insurance. I’ve owned lots of its and recommend my readers own lots of it. I’m anti-insurance being sold improperly. For some stupid reason, that happens a lot when it comes to the combination of whole life insurance and young doctors.
Hi Robert, appreciate the comments whether positive or negative, but I would have kept to medicine if my poor financial decisions didn’t affect my medicine. As I mentioned I was rushing through patients to generate enough money to keep up with the $28,000 yearly life insurance premiums.
I am ashamed I compromised the care of my patients because I was not financially literate. This really was not my opinion above in the article, just my painful experience.
And no, I don’t find it ironic that insurance companies are paying my high salary because the insurance industry was taking it back by selling me whole life.
Many years ago, a CFP with fiduciary duty sold a policy to his client. The CFP couldn’t make up his mind to charge commission or ongoing AUM so he did both. The fees were 5.29% annually. The facts were so ugly that the insurance company offered a very generous settlement. The person accepted contingent upon being allowed to file a complaint against the certificant with the CFP Board, which found no violation with the “higher standard.”
Kevin Keller, the CFP Board CEO, claimed standards were higher after the fact but I kept showing him and the Board of Directors that they had a lower standard and took action AFTER regulators had done so. On July 30, 2019, an article in The Wall Street Journal exposed the CFP Board for having 6,300 CFP certificants with FINRA disclosures while the CFP Boards LetsMakeAPlan.org showed consumers they were in good standing with the CFP Board with no disciplinary disclosures. A subsequent article shortly afterwards made the case that investors need this cop to toughen up.
The Board of Directors rewarded Kevin Keller and senior officers with hefty raises shortly afterwards condemning financial planning to continue to be a sales vocation rather than a profession.
Allan, I love you m an! Honored you read my post. Your How a 2nd Grader Beats Wallstreet was one my first books after Jim’s as I was getting financially literate! I loved your article about the CFP board being much different from the MD board and allowing non-fiduciary behavior without consequence! Yes, my buddy was a CFP, yet I’m not sure if it’s changed but in 2011 when my buddy was hired by the he who must not be named insurance company he was allowed to sell my whole life on me and my wife, rollover our 401k’s into IRA’s and bought VA’s within them preventing me from doing the Backdoor Roth, sold me non-true own occ disability insurance policies but rather the Medical Occupation Definition they said is the best for medical professionals, and the advisor led Virginia 529 plan with 150 bps yearly cost on top of the 5% load of using the American Funds!
He still advertises his CFP designation at the insurance company he works for.
My experience has now made me more wary of financial advisors with a CFP designation. Sad, but true.
This author is ignorant and dangerous. His responses here show that he is emotional and unwilling to listen to logic.
I can only hope these unfavorable character flaws don’t get in the way of his day job and cost somebody their life. Or should I say “whole life.”
Classic ad hominem stuff. When logic fails, just attack.
Hi Rob, it wasn’t the character flaws that got in the way of my day job. I ashamedly was rushing through patients to generate enough RVU’s to pay for whole life premiums. Can you imagine if it was my family, your family, anybody’s family that I was treating? I went into medicine because my brother has cerebral palsy, and I idealistically thought I could just focus on medicine and be a good doctor. I never thought financially illiteracy and buying whole life would make me worse at my day job.
Impressive but poor article. Impressive with all the “facts” and “research” but it’s basis is flawed.
Yes, You should have done more research in the beginning. This is your fault not the product.
No, it should never be touted as an investment. It’s not. Nor should be presented as an all in one tool. It’s not.
It also sounds like this particular policy wasn’t set up properly by the agent.
Should we talk about doctors that cut off the wrong leg? Make a faulty incision that leads to sepsis and death? Unneeded surgeries? Misdiagnosis. Are there bad doctors? Yup. Are they all bad? Are there bad agents? Yup. Are they all bad? Nope.
Man up. It’s your own fault. There are many many people who have successfully used whole life insurance as a PART of their plan. And they made millions in income not a few hundred thousand. There are a lot of broke doctors out there that spend more than they make because many of them smell money.
Enough.
“This is your fault not the product. No, it should never be touted as an investment. It’s not. Nor should be presented as an all in one tool. It’s not.It also sounds like this particular policy wasn’t set up properly by the agent.”
So a “friend” that was a “financial advisor” with a fiduciary responsibility changed roles without notice.
Deceptive snake in the grass. Blame it on the victim is your recommendation. Don’t believe a word, they are selling a product to make money. Buyer beware. No way to treat friends of customers.
I really agree with your recommendation. Do not trust or believe ANY insurance agent that is trying to sell WLI.
Yes, it was his fault that he fell for a whole life insurance policy sold to him inappropriately. No blame should be laid at the feet of the industry and its agents because it’s a Caveat Emptor market. Really? No wonder this blog is so necessary when that’s the way those in the industry think.
This article is like a Ken Fisher commercial stating that he hates annuities and is ridiculous and full of false information. There is nothing wring with whole life insurance or any insurance plan or product if it is used properly and in a client’s best interest. I have been in the insurance industry since 1987 and I have seen a great deal in my career. I am often asked what is the best life insurance policy to have or purchase and my answer is always the same. The best life insurance policy to have is the one that is in-force when you die. If we all knew when, it would be east to plan for, When used and funded correctly, whole life insurance can help many clients as they age grow older and experience life’s challenges. Writing articles like this serves no
purpose and only hurts many in the long run.
“The best life insurance policy to have is the one that is in-force when you die.”
Therein lies the biggest problem with your industry. I couldn’t disagree more on that statement. If you don’t have any dependents reliant on your earnings, then you don’t need life insurance!!
Therefore, the best life insurance policy is the one you NEED(ED) to provide for your dependents when you die. Full stop.
I’m sick and tired of all these insurance guys on nearly every post saying, “Your agent sold a bad whole life policy, but I sell the good kind [insert straw man argument].” That just doesn’t pass the smell test. Although misguided, it’s not surprising that the phalanx of insurance guys come out to defend their territory. But remember, the narrative is more compelling than logic. There are many in modern society who still vehemently argue various conspiracy theories, antivax theories, flat earth theories, etc. Easy for some folks to fall for the false narrative. Even easier when their compensation depends on it. Read Bill Bernstein’s new book. It’s insightful.
All of these misguided comments and really lend more and more importance to the work Dr. Dahle has done in educating me and my physician colleagues on money and finance.
Yes. Used properly being the key. This one, like most sold to young docs, was sold inappropriately.
The article helps far more than it hurts given the history of doctors being sold whole life inappropriately.
Jim, I want to tell you what a great blog you have and how much I appreciate the work you do.
When I was a senior resident 10 years ago I found your blog and it’s changed my life (I actually even sent you an email and you responded personally).
All the vitriol made me want to reach out and tell you how appreciated you are. I give a copy of your first book to every new doc I hire.
What do you mean “vitriol”? This is normal for every post that has ever been written about whole life on this site. This isn’t even a post I wrote.
ha! btw Jim, how do you do it man? This might be the last column I write on whole life! Too many comments to respond to. didn’t think whole life was so exciting!
I apparently went too long between whole life articles and a bunch of insurance agents started reading the site thinking they were the target audience and not the subject.
I couldn’t finish the whole article b 4 my eyes glazed over. But it amazes me how you are so one sided like just because it would not meet your needs it would not meet anyone else’s long term objectives. I get it, most whole life is not sold properly. But if you get a good agent that puts a 75% term rider and a PUA rider on, your getting 5.75% tax deferred accumulation nearly 100% guaranteed. ie mass mutual, penn mutual, NY life etc. More over if you utilize it for income your getting 10% or higher withdrawal rates, completely free of income tax. Where else can you get that. I mean you all can get on here and bash this all day and it’s complete misinformation and product ignorance. I am happy to get in a zoom call with any of you and show you actual client statements with hundreds of thousands in these policies and they are off the charts. Proof is in the pudding. If term is so great then why would you ever buy a primary residence? Just rent it.
Why would you buy something that costs half the price in interest, real estate taxes take another 3rd of the price, maintenence over 30 years for a measly 3% historical average appreciation? Off course there are unicorns.
No financial product is bad for 100% of the people. Just like no financial product is good for 100% of the people and when you present it like it is it takes away the credibility of the source.
Ben,
The rent vs buy primary residence is a straw man argument at its worst. But since you went there, most studies on this show that rent vs buy is essentially break even. Some studies suggest renting primary residence is even superior (financially). So most financial professionals worth their bacon will tell you that buying a primary residence is a lifestyle choice, not an advantageous financial decision. So if you’re throwing around straw man arguments to support your whole life insurance peddling, I’d pick a new one.
If you like whole life insurance so much, I suggest you buy a ton of it. But make sure you pay the commission to another agent so we are all on the same playing field here.
“Nearly guaranteed” is a funny term I’ve never heard from anyone who doesn’t sell whole life insurance.
10% of an amount that is 1/4 as large as it should be is less than 4% of the much larger amount one would have with a real investment.
And you’re seriously arguing better after tax returns from whole life than real estate? That’s nutso.
Just because it isn’t bad for 100% doesn’t mean it isn’t bad for 99%.
It is better than “almost guaranteed”.
It is “almost 100% guaranteed”.
I suppose “almost 200% guaranteed” would be even better.
Apparently, torturing the English language is a core part of selling insurance.
It’s the same. Rent vs buy or wl or term. Regardless. There are differences between bad policies and bad agents as I specified in my last post. I am not sure why Dr’s come on here complaining about a product that they can put any amount of money into, grow it tax deferred and take out over 10% of the balance in income completely tax free everybyear In retirement. A whole life policy or an IUL may not compete on an index fund 100% of the time on account value but when you compare the life insurance through the Dr’s whole life, tax free income and death nothing else compares. Sorry. Your misinformed and product ignorant.
Tax free but not interest free non-income you mean. You can borrow against your car or house tax free too. Nothing unique there.
You can take 10% of the balance out of anything every year…the balance and 10% of it just gets smaller and smaller.
Come on man, you Other then the fact you dont have to pay the loan back? The whole reason life insurance is tax free is because of policy loans. And no you can not take out 10% balance in retirement and not risk market volatility, running out of money and being broke. Whole life and IUL for that matter both are always positive balances. Instead of having drs cancel policies they put 25k – 50k a year into you should align yourself with someone you trust to fix the policies they already have if they need it. Your really doing a huge disservice to the doctor. There is nothing else on the market that can compete for HNW individuals from beginning to end.
Borrowing against cash value is nothing unique about whole life insurance.
I can borrow against my house. My heirs can sell the home after my death pay off the loan, and keep the balance. Same as for life insurance.
I can borrow against my brokerage holdings. I can let that loan accumulate for the rest of my life. None of the borrowed funds would be taxable income. As with a life insurance policy, there would be a limit of how much I can borrow, based on the value of the account.
I can shop for the best loan terms, rather than being stuck with a company from which I may have purchased a policy years ago.
Like life insurance, these loans would accumulate interest. Unlike life insurance, I would not be paying premiums in order to maintain the ability to keep the loan. Sure I could prepay the premiums, but I would still be paying for a death benefit that I don’t need.
I don’t run this site but I have been reading it long enough to have seen many of these claims from insurance salespeople. I propose the salespeople take up this offer:
Let’s identify a target customer and design a whole life pilicy that is better than buy term and invest the difference.
Let’s say a 40 year old two physician couple. Earned income $500k annually. $2M in investments. $200,000 in 529 for the kids. $300,000 mortgage outstanding on a house worth $1M. No other debt. Two kids, both 10 years old.
Most of us would say this couple has no need for permanent insurance. They might have a temporary need for death benefit coverage that will expire in 10 years or so.
Compare their options to build their tax deferred, Roth and taxable investments with term for 10 years to a permanent life policy.
If you like, compare borrowing from a whole life policy to borrowing from a brokerage account.
Don’t just make claims about it. Post a complete illustration showing annual cash flows for BTID vs whole life.
If the WL is so great, this should be easy to do. We would all learn from seeing it.
You think they’re always “positive balances?” Try to get your money back out after the first year or two. What? You’re underwater? Doesn’t sound like a positive balance to me.
Only those who sell whole life insurance think I’m doing a disservice. Everyone else writes me notes of profuse thanks for helping them understand this product they no longer want once they understand how it works.
Ben,
Your argument is all sales tactics and supposition. The math doesn’t add up. It almost never does. I have seen the realities of the product over time with the policy that my deceased father had and compared it to investing the premium dollars in low cost index funds over the same time period and the results would have been double the amount after tax (stepped up basis) with the index fund. I know that this was an n of one but it is a real life example. All the insurance salesman like yourself can do is provide an “illustration” which is a best case scenario that make assumptions that likely enhance the projections. Product design is not the problem. The fees and expenses associated with whole life, coupled with very conservative underlying investments doom the product. Buy term and invest the rest is the mantra because it is the truth. Sorry. You’re biased and misinformed (and should check your grammar too).
Keep up the good work Jim. These comments are fascinating. The oversell of these various whole life/UL products to young doctors is real. I found it difficult in 2010 to purchase term and disability having to sit through powerpoints, field phone calls and emails about WL/UL and repeatedly say “not interested” before the products I wanted were sold.
yup, couldn’t even get the benefits out of the policy as couldn’t keep up with the premiums and that was after 7 years. and oh yeah, I tried to use that tax free “income” by borrowing against the policy when my 2nd child, Mia, was born. I tried using it keep paying the premiums, but the interest rate was 8% on the loan!!! was much worse than my student loans.
any even if I could, I can’t put any amount into it, only up to the MEC limit. Cash value grows tax deferred, but then taxable has the advantage of long term cap gains. And the 10% tax free withdraws in retirement is essentially just a return of your principal you paid into the policy. It’s just my cost basis. After that is used up, then I get taxed at ordinary tax rates.
I’m so glad I’ve never been pitched to buy a WLI, I was financial illiterate like most of the doctors before, and probably would have fell for one. But as I gained more and more personal finance knowledge, it is very clear to me that this is bad product for almost everybody unless you are the one selling it.
consider yourself lucky! awesome that you are financially literate without having made any terrible mistakes.