Financial Planning for Businesses

Whole Life Insurance vs Term Life Insurance vs Universal Life Insurance

Since I keep getting emails and comments on the blog about this, I thought I should devote (yet) another post to this topic. It never seems to get old, which is OK. I could go on proving my point until the cows come home.

I love my work. I especially love my work now that I’ve made extensive plans to broaden the scope and reach of my business beyond New York State, where I am located. One of the reasons I love my work is that not only do I love the opportunity to improve my skills and broaden my knowledge of the financial planning industry, I love to be challenged. I don’t mind inquisitive minds. And, there are plenty of them out there. Sometimes I wonder though if some of these people are working for my competitors. Anyway…

With that being said, here is a question that was posted to the blog recently:

I have two questions. As stated in many of the comments and articles noted, BTID is a concept that shows people how to save their own money so they will not have to depend on the insurance companies to do it for them. They are in control of their own investments which if done properly they will no longer have a need for insurance and will have a substantial nest egg to support themselves through retirement and live debt free.

How does UL policies justify selling anyone an insurance policy that detracts from the insureds cash value until the is nothing left andd leaving them with a $0 death benefit unless they reinvest and say that is better that BTID theory?

How does WL justify charging double the cost of a term policy to help the insured save money but at the maturation of the policy only give the insured either the face value of the policy or the cash value built up in the policy when it is the insureds onwn moneyy they have been saving?

This was posted to the comments section of my blog on an article about life insurance. First, thank you for your question Tammi. I’ll answer your question in several parts.

First, I want to address your opening comment:

BTID is a concept that shows people how to save their own money so they will not have to depend on the insurance companies to do it for them. They are in control of their own investments which if done properly they will no longer have a need for insurance and will have a substantial nest egg to support themselves through retirement and live debt free.

I think that there is a false implication made in your premise, and when I address it, the rest of this will pretty much sort itself out. The “BTID” acronym that Tammi is referring to stands for “buy term and invest the difference”. For long-term readers of my blog, you know that this is a strategy where you figure out how much whole life insurance you can afford, and then you take that cash outlay and you buy an equal amount of term life insurance and invest the rest. That’s what’s supposed to happen anyway. Many times, the BTID crowd just ends up buying a lot more life insurance than they need, and ends up saving very little, or none at all, of the difference.

Buying term insurance and investing the difference assumes that you will remain in control of your savings and that an insurance company won’t have control over your money. This is just wrong. I mean, it’s factually incorrect. It’s like saying 2 + 2 = 5. 

The implication being made is that you are giving an insurance company money and are not really getting much value in return – and you’re not really saving money. The facts say otherwise.

With life insurance, you are saving money, though not in the same way that you are saving money in a bank account.

The life insurance death benefit represents the “savings” portion that is leveraged against your future. The cash value represents the cash reserve that is contractually owed to you by the insurance company.

What’s the alternative? Well, the proposed alternative is that people will be “in control of their own investments” if they “invest the difference” and just forget about the life insurance company. The myth is that they can just cut the insurance company out of the picture. That’s not necessarily possible though. For starters, many life insurance companies also have a broker/dealer division so they are still holding and managing the money that you invest into mutual funds.

If you buy mutual funds, you’re not in control of your investments, the mutual fund manager is. Yes, it’s your money. Yes, you can cash it in at any time. No, you don’t choose where the money gets invested. The fund manager makes that decision and can change their mind whenever they wish (they can change the fund objectives at their discretion).

Another alternative is stocks. You’re more in control of your investment there, but the profits you realize are still determined by the company you buy. You share in the profits and losses. Yes it’s your money, yes you can cash it in at any time. Yes, you have some control over the management since the shares represent partial ownership in the company. However, I’m not convinced that most people buying stock have a lot of influence over how the business is run by management.

Now, I’m a big proponent of understanding what you are investing in or where you are putting your money. You should fully understand the contract you are buying, otherwise, you should just not buy into that contract. That doesn’t mean that I think that everyone should go out and start doing their own investment research. Not everyone is interested in that, and not everyone has the time to do that. That’s OK.

I think everyone can and should, however, understand how these products work, and understand the basics – the fundamentals – of investing so that they could, if they absolutely had to, figure out how to invest on their own and do their own investment research. Anyway…

…this brings me back to the original financial product mentioned above – life insurance. Yes it’s your money. Yes you can cash it out at any time (the surrender value). No, you don’t really have control over where the insurance company invests the money. Do you see a pattern here?

It really doesn’t matter what financial product you invest in. Brokerage houses and insurance companies act as financial intermediaries, for the most part. As a small-time investor, you get to benefit from their size and financial strength. They direct the investment because they have the skill and ability to do so. If you understand the principles of sound investing, then “doing it yourself” is really a matter of choosing financial products where you have a reasonable amount of control over what happens with your money.

What’s amazing is that out of those options above, life insurance actually gives you the most control in terms of what happens to your money in the future. Why is that? Even though you have virtually no control over the investments that an insurance company or brokerage house makes, the life insurance policy is the only one that is a performance contract with terms that must be met by the insurance company. These are called unilateral contracts. The insurance company must abide by them but the policy owner cannot be forced to abide by the contract (the policy owner cannot be forced to pay premiums, but the insurance company must provide the promises outlined in the contract).

So, while you do not have direct control over the investments, you do have future certainty built into the contract. You don’t have to deal with all of the investments in the contract, you only need to worry about getting the promises made by the insurance company.

You can accept the terms of the contract or you can reject them. If you reject them, you don’t buy the life insurance policy. If you accept them, then the insurance contract pays its stated interest rate and any variable rate that is specified in the contract. The advantage is that you can know in advance what to expect from the contract. Even if the terms specify some unknown variable, like a fluctuating interest rate, you know that it will be variable before you ever sign on the dotted line. For fixed contracts, you know exactly what to expect and what you will get and when. That’s just not true with stocks and mutual funds.

How does UL policies justify selling anyone an insurance policy that detracts from the insureds cash value until the is nothing left andd leaving them with a $0 death benefit unless they reinvest and say that is better that BTID theory?

Honestly, this sounds like the incoherent ramblings of a Dave Ramsey true believer, but I will attempt to give the question some serious consideration. The way an insurance company justifies selling a Universal Life insurance policy is that there are buyers. On a free market, you’re free to choose whether or not you buy any particular product.

How do brokerage houses justify selling mutual funds when 94% of them fail to outperform their underlying index? Simple, there’s a market for them. If you don’t read the fine print of a contract before signing it, that’s your fault. They are not responsible for your financial well being. They’re only responsible for abiding by the terms of the contract or agreement that both of you sign and agree to of your own free will.

If you don’t like the idea of having to read a contract before signing it, then my suggestion is to grow up, be an adult, and take responsibility for yourself and your finances.

As to the question of the vanishing cash value, yes, that does happen. There are many universal life policies today that are not designed for cash value accumulation. I repeat, they are not designed for cash accumulation. So, it should be no surprise that the cash values drain out from them eventually.

These policies include no-lapse riders that keep the policy from lapsing if the cash value is drained from the policy. Older universal life insurance policies were initially designed under a “buy term and invest the difference” idea (it stings, doesn’t it?) and did not have this feature. The rising cost of insurance in the later years of the policy were not perceived as a threat (after all it was a new product in the late 1970s and early 1980s) during a time where interest rates being credited to the policy cash values were beginning to rise.

But, I would ask that you check your premises if you think that the insurance industry is out to rip off consumers intentionally. The history of the universal life insurance contract is an interesting one. It was not the life insurance industry that initially conceived of such a beast, it was the securities industry, and E.F. Hutton in particular, that developed and made popular the notion that “buy term and invest the difference” could work as a singular contract.

From this, and from pressure put on the insurance industry from the Federal Trade Commission over what they thought were “low” interest rates on whole life insurance policies, the modern universal life insurance contract was born. Everyone can see how successful that venture has been.

My view is that this product was an ill conceived and not well thought out response to the FTCs call for higher paying interest rates on life insurance cash values during the late 1970′s and early 1980s. Another factor contributing to the rise of universal life was the fact that insurance companies were losing money to mutual fund companies and the group life insurance industry, both heavily influenced and sponsored by the Federal Government. In fact, as far back as WWI, the Federal Government thought it was wise to intervene in the insurance industry to help create the group life insurance market we see today.

Now, there are some universal life insurance contracts that are designed more for cash accumulation. The policy design is such that costs are leaned out, even in later years, policy fees are reduced, and the crediting strategy is such that the contract is almost certain to perform as expected. It’s no guarantee, but the likelihood of the policy lapsing is small.

With that said, I don’t think that anyone is saying that a universal life insurance policy that is designed primarily for death benefits, thus minimizing or eliminating the cash value in the later years of the policy, is better as a cash accumulation strategy than, say, buying a cheap term life policy and investing some money in stocks or mutual funds.

I think what is being said about those types of universal life insurance policies is that they are a great way to buy life insurance that is guaranteed to remain in force for your whole life due to the no-lapse guarantee provision in those policies.   

How does WL justify charging double the cost of a term policy to help the insured save money but at the maturation of the policy only give the insured either the face value of the policy or the cash value built up in the policy when it is the insureds onwn moneyy they have been saving?

Since you cannot directly calculate the cost of insurance in a whole life policy, the implication that whole life is “double the cost” of a term life insurance policy is wrong. Speaking strictly of death benefit costs, they should be the same, since both whole life and term use the same mortality tables. As to the costs of the policy other than mortality charges, that varies by company. 

If a whole life insurance premium is $100 for a $100,000 death benefit, most people are told that the premium represents the cost of insurance. This is seriously misleading. I often wonder how people who say such things on T.V. and on the radio can call themselves knowledgeable about these types of products.

Since there is a cash value component, some of that $100, actually, a good portion of it, is being set aside to cover the underlying investments that have to be made in order to meet the terms of the contract, namely the cash value – which is substantial for some policies.

The way they justify giving the insured either the death benefit or the cash value is because the policy owner is going through a process of self-insuring. When you buy a whole life insurance policy, even when you buy a term life insurance policy, you are leveraging a future savings that you don’t have right now and paying for it on a month to month basis. That savings is something intended for your current and future financial responsibilities like a mortgage, or car loan, or any other debts you have incurred or are expecting to incur (i.e. funeral costs).

With the whole life insurance policy, you have the added component of the cash value which will become a sort of savings that you can use during your lifetime.

I know what the BTID folks are thinking. You’re thinking that when you buy term and invest the difference, that you have both your savings and your death benefit (from the term life insurance) and therefore, you get to pass along more money than if you just had the whole life, which offers you the cash value while you’re alive or the death benefit to your beneficiaries after you die – but not both. The misconception here is that the cash value and the death benefit are totally unrelated in a whole life policy. They’re not. The cash reserve represents money set aside to pay for a future claim (the death benefit). The cash value replaces the death benefit over time. This is how the insurer can afford to insure you to your age 100.

The same life insurance companies that are vilified for selling whole life insurance also either sell term life, or are re-insuring companies that do sell term life. Either way, they’re not stupid.

A life insurance company does not make money by paying claims. I’ll say this again. A life insurance company does not make money by paying claims. They make money by retaining their reserves, retaining customers (and policy fees), and investing money. A major reason that term life insurance is so cheap is that most term life insurance policies never pay a claim. This is due, in large part, to modern medicine, and our life expectancy. It’s also no coincidence that premiums rise dramatically after age 60.

If term life was guaranteed to pay a claim, then I guarantee – I GUARANTEE – the cost of term life insurance would skyrocket and it would cease to be the perceived deal of the century. As it stands, only about 1% of all term life insurance policies ever pay a claim. If you only had to pay out on 1%, or even 5%, of the promises you made, and you were an insurance company, do you think you could afford to offer those promises at rock-bottom prices? I think so.

It takes a lifetime to build up a savings assuming you are using the same risk profile for a “BTID” strategy and a “buy whole life” strategy. Term life represents a bet against yourself in some respects. Your beneficiaries get the death benefit if you die within the term. But, you have to die, and there won’t be much in the way of savings.

Now, if you live out the term, your renewal rate on that term life policy is likely to be totally unaffordable (especially if you bought a 30 year term policy at age 30) and you’ll drop it because you have a sizable savings. If you want to keep the term life policy, you’ll have to destroy your life’s savings to pay for those premiums.

On the other hand, paying whole life premiums may not yield a large savings for many years, and you’ll almost certainly have a smaller initial death benefit with the same cash layout as the BTID approach, but at the end of 30 years, and in some cases at the end of 10 or even 5 years depending on the policy, your whole life insurance is guaranteed to be paid in full regardless of what happens to interest rates or dividend scales. In some respects, the whole life policy is a bet on your own success–the complete opposite of a term policy.

What’s nice is that, with a good whole life policy, your cash value continues to grow and you end up with the same, or larger, savings as you would have had under a BTID strategy after 30 years. You’ll also have more death benefit than you would have had under the BTID approach (because you dropped the term policy due to the cost of premiums). When you die, your beneficiaries get the death benefit. While you’re alive, you have use of the cash value.

So, you see, you really don’t get both the term life policy death benefit and your savings by buying term and investing the difference. You get one or the other, just like with the whole life. The difference is with BTID, your savings is your death benefit after you drop the term life, while the whole life death benefit remains intact.

The other difference is that the whole life insurance passes income tax free, while your savings from the BTID does not. That may or may not make a huge difference in the amount of money you leave to your beneficiaries.

I hope that clears things up for you Tammi. I always appreciate comments and legitimate questions, and while I try to be civil, some of the questions I get are not so much questions as they are “arguments from intimidation” (i.e. “Why do insurance companies rip people off…?”) posing as legitimate questions and that, my dear readers, I simply won’t stand for. 

Enjoy the weekend, and keep those questions coming!

August 8th, 2009 | by David | 13 Comments

13 Responses to “Whole Life Insurance vs Term Life Insurance vs Universal Life Insurance”

  1. james says:

    Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes – and avoid the pushy salespeople. :)

  2. Dan says:

    First of all, let me say that I have enjoyed your blogs very much, and appreciate the candid way you explain your points. Thank you.

    I have gone back and forth many times when thinking about which type of life insurance to buy for my family. I finally settled on a 30 year, level term, policy. That left me a nice amount left over each month, which I put into a combination of my Roth 401K at work and savings. (savings includes a laddared CD portfolio, index bond mutual funds, and money market) Basically it came down to the fact that if I did die within the next 30 years, my wife and kids would have the life insurance proceeds, as well as the 401K and savings money. If I don't die in the next 30 years, I will have built up a nice pool of money that will then act as my self-insurance from that point on. I do not plan to purchase more life insurance that point.

    When I looked at the alternative, I would be paying all of the money to buy whole life. If I died in the next 30 years, my wife and kids would get the life insurance proceeds, but that's all. If I died after the 30 years, they would get the life insurance proceeds, and that's all. Like you've mentioned several times in your blog, the "cash value" that accumulates is really just a way to ultimately self-insure. It reduces the life insurance companies liablity.

    I intend to be self-insured by the end of 30 years, so it seems like I would be in the same boat after the 30 year mark with either plan. And with the term-plan, I can at least know that if I do meet an early death, may family will get both the life insurance and the additional money i saved in premiums, and have diligently been saving.

    I do realize there will be some tax consequenses with having my money outside the life insurance, but after doing the math, those taxes won't eat up all of the money, like having it go towards the whole life would.

    I would appreciate your thoughts on my strategy.


    • Thanks for your comment. Sounds like you've put some thought into this. If you can do better than the insurance company, then that's good too. There are some advantages to going the BTID route if you can self-insure and still figure out how to cover your financial liabilities. Remember that self-insurance leaves you without a way to insure whatever obligations you have left, and that you cannot use your savings for both at once. While it can be a good idea in certain instances, you really have to have significant cashflow to replace the insurance company. Also, both term and whole life carry the same mortality costs, since they are both designed around a guaranteed insurance cost structure based on the 2001 CSO mortality tables (I don't think anyone is still using the 1980 tables). So, all policies from all insurance companies have the same guaranteed costs. Which is to say, I wouldn't be too worried about which policy costs more. They cost the same over your insurance/savings/investment lifetime.

      The main difference is that if there is an overage, you get it all back with WL, whereas the insurer keeps the difference with term since there are no non-forfeiture options. Most insurers are pretty good about it though and there's usually not much, if anything, that would be returned in a term policy anyway.

      Yes, whole life is the process of self-insuring. But, it doesn't happen until age 100. The whole life structure lets you decrease that net amount at risk without eliminating it until your advanced age, since there's always some financial obligation you'll be taking on until you're dead.

      I personally like using WL better than separating mortality function from the savings (which is what all buy term/invest the different strategies attempt to do). I find that my IRR is about the same as most people's net return in their 401(k)s, I like the WL guarantees, I like the non-direct recognition loans (which are not possible in 401(k)s), and I like the degree of control that I cannot have in a 401(k). If I see a good investment opportunity, I'm also free to jump on it without any restrictions. But, for me, it's about more than just rate of return so I think I am just approaching it from a different perspective.

      • Dan says:


        Thank you for your response. Not being a financial professional, I do realize there are areas I don't fully understand.

        Am I off base when I run my calculations about dying withing the first 30 years? With WL I found that my family would only get the $250,000 death benefit. By doing Term and putting the difference in premium into my personal savings, I found that my family would get the $250,000 death benefit plus the savings.

        Again, I appreciate you thoughts.

        • Hi Dan,

          I don't know how you did your calculations, so it's hard to answer your question here.

          As far as your question about whole life, it does depend on the whole life product. Like anything else, you can have a well designed product and one that's not so good. So, let's say with dividend paying whole life–you do actually get the accumulated value of savings plus the face amount of death benefit, since the dividends go to buy additional paid up insurance, your whole life policy increases in value every year. Actually, it can increase quite substantially in as far as a rate of return on death benefit is concerned. With universal life, the increasing death benefit option is literally buy term and invest the difference. If you go that route, you also get your savings plus the face amount of insurance.

          Even though you get your savings plus death benefit with the right permanent insurance policy, I wouldn't be overly concerned about dying within the first 30 years. Obviously, it can happen. But, the probability is very low. I had another discussion last week with an analyst from a major life insurance company. Part of our discussion was about cost structure, but he did mention to me that, interestingly, the industry pays out less than one percent of all term policy death benefits. It didn't surprise me, but I didn't realize the figure was less than one percent. I thought it was between one and five. Death rates are very low prior to something like age 60 or 65, which is (incidentally) when term rates start to rise dramatically. Insurers are not fools. They price their products to make money. I hope that helps.

  3. Dan says:


    Great reply. I too am hoping for a "less than one percent" chance that I will die in the next 30 years!

    Thank you for helping to enlighten me to the other options that are out there. Am I understanding you correctly when you say that with both the "dividend paying WL'" and the "Universal Life with the increasing death benefit option", I would effectively be be getting additional value upon death based on the increasing death benefit? In other words, If I bought a $250,000 face policy, it would continue to increase through the years resulting in my family getting more than the $250,000 when if I died?

    For the people who say that if you buy term and put the difference in premium in a cookie jar, and get hit buy a bus tomorrow, your family will get the death benefit and the cookie jar. And if you buy WL today and get hit by that same bus, your family will just get the death benefit minus the cookie jar. Are they mathmatically wrong? I do realize the small likelihood of this happening, but just curious.

    Thanks again!

    • Dan,

      Am I understanding you correctly when you say that with both the “dividend paying WL’” and the “Universal Life with the increasing death benefit option”, I would effectively be be getting additional value upon death based on the increasing death benefit?

      Yes, this is correct. UL with increasing DB is the face amount of death benefit plus cash value (this is actually how it is defined). Dividend paying whole life essentially gives you this also, depending on how you've set up your dividends and the policy. I mean, technically, in a whole life it's all death benefit since it's a bundled product so there is no separation of mortality costs and cash value/investment function. The cash value represents a reserve that replaces and becomes part of the death benefit (this is how the cost in whole life always goes down over time–the amount of death benefit being purchased becomes less over time). Think of it as a cash advance on the death benefit during your lifetime. The dividends are what help you out there. As an example, you may earn $200 in dividends in the first year, but that purchases $2,500 of paid up death benefit. The dividends then become part of the cash value and earn their own dividends which go to buy additional paid up insurance. So, the dividends grow exponentially. It's not exactly the same as a UL, but it's pretty close if you look at what's happening in the policy.

      For the people who say that if you buy term and put the difference in premium in a cookie jar, and get hit buy a bus tomorrow, your family will get the death benefit and the cookie jar. And if you buy WL today and get hit by that same bus, your family will just get the death benefit minus the cookie jar. Are they mathmatically wrong?

      Well, if they are talking about a straight whole life with no dividend options, then yes this would technically be correct since the death benefit never increases. You would want to save a small amount of money on the side in a "cookie jar" if you wanted extra. Basically, you'd want to save money on the side in lieu of a dividend payment from the insurer. With what I just mentioned above in regards to dividend paying whole life and UL with increasing DB, the gurus are wholly wrong. Problem is, much of what I see the gurus doing is just painting all policies with the same brush. They don't do it with stocks or mutual funds or anything else. But, with life insurance, they blank out and turn into idiots.

      • Dan says:


        Again, thank you for your detailed explanation. I do think you're right about the "gurus" painting all WL with one big brush, while at the same time giving mutual funds a pass. They're also guilty of sometimes inflating potential returns, from those mutual funds, for their comparisons.

        In all fairness I have met, and sat through, more than my fair share of sales pitches for WL. The agents I've talked with have painted WL with such a broad brush you would think it is the end-all, be-all for anything in your life you want to do. "Save for college", "Save for retirement", "Save for a new car/home", "Daughter's wedding". There just seem to be so many other products out there that aren't given any credit. (i.e. 529 plans, ROTHs, etc..)

        I guess I end up feeling like WL is an expensive way to force people to save, who don't have the disipline to do it on their own. Not an evil product, or one that's trying to rip people off, just filling a need in our society. It's pretty obvious that there are many who would not choose to save anything if they didn't have a "premium" to pay.

        As always, thanks for your time and responses.

        • Dan,

          You're welcome. Yes, I know that there are a lot of agents in favor of using WL as a "end all, be all" product. It has its place. It accomplishes a lot, but it obviously cannot do everything. I disagree with your estimation that it is expensive. I've noticed you've implied this before. The facts do not support that conclusion.

          The cost index for well designed policies always ends up rather low, meaning the out of pocket premiums required to pay for the insurance costs decrease over time. In some cases it goes negative due to the investment function of the policy. I know a common argument is that whole life is "expensive." The reality is that the mortality costs are the same for all policy types, since they are all based off of the same mortality tables. You'd be just as accurate to say that "term life is an expensive way to buy insurance and save money." The investment function of the policy is what some people don't care for in whole life, since it's based on bonds. That's a different matter. A matter of investment philosophy.

          As a foundation, I do not like mutual funds, stocks, or equities in general. I do, however, like them very much for the volatility factor they give when seeking higher investment returns for a portion of one's portfolio. The issue I have with equities is that the averages calculated in spreadsheets for these products tends to be somewhat misleading (see:, though this is what is normally done since using fundamental analysis and value investing to predict real returns is much harder and requires some education and a bit of specialized knowledge. You don't have this problem with insurance, since 1) the risk is spread out not only among various bond issues, but among millions of policyholders and 2) the underlying investments pay a fixed return which doesn't not vary, aside from dividends, which trend very slowly and are relatively predictable.


          • Dan says:

            When I've mentioned costs, I wasn't refereing to the cost of insurance. I do believe that the cost of insurance is calculated very close to, if not the same, with both WL and Term. I'm refereing to the internal costs associate wtih the WL policies I've seen. (1-3% annually) I can invest in no-load, index investments for 0.20%-0.50% annually. I'm controlling my costs by a minimum of half. Based on my research of costs, and their drag on realized performance, I believe this will have an effect over a 10-30 year period.

            I like you link on average annualy performance, as that is what I've always thought when I've actually done the math before. I also agree that equities should not be the base to anyone's portfolio. My portfolio has a base that includes CDs, Bonds, Insurance (Term, which I believe offers a base hedge to a portfolio) and real estate. I then utilize tax-free equity vehicles (ROTH, 529).

            I do realize that owning anything that doesn't say "guaranteed" return on it, does imply some level of risk. (of course that will vary based on the asset class adn type of investment). But I'm also a little sceptical of anything that says they can "guarantee" something for the next 25-100 years. I've company pension plans, pre-paid 529 plans, and even the great social security, run into actuarial problems. Some have ended up not be as "guaranteed" as they would have liked you to beleve when you got in. I know good companies have had great track records over many years. I just don't fall head-over-heals for their promises of the future.

          • Hi Dan,

            Yes, some policies cost more than others. However, as I mentioned before, the cost index goes negative on some well designed policies so I think the internal costs you speak of can be made a moot point depending on what you're looking at. A negative cost (a gain) is better than even a .2 to .5% cost :) Even if the cost index does not go negative, it's always going down. But, you're right, some of them are expensive. So are some mutual funds. I wouldn't call every mutual fund expensive though (I'm assuming you mean a bond index, since comparing to an equity index would be relatively meaningless from valuation analysis standpoint).

            RE: "guaranteed". Yes, that simply means that the underlying investment has a promise to pay. With whole life, those are the bonds. If they pay, they'll pay the stated rate. I think the insurance business has done a pretty decent job. According to economist Jesus Huerta deSoto, in the last 200 years, very few insurers have become insolvent. With pensions, many of them make promises that they have no way to back up since they're either unfunded or invest in non-guaranteed investments. They want that 8 percent, which is understandable. But, you cannot promise that, and they do. The ones that do come through for employees are those 412(i) plans. But, they use fixed life insurance and annuity policies and always pay the promised benefits.

            I think if you're knowledgeable about what you're doing and you understand the risks in your strategy and have compensated for them or at least know that they are there and are willing to take them on, then you'll be OK from a planning perspective.

  4. S J Kear says:


    I really appreciate your life insurance information, could you please comment on indexed UL and it's pro's and con's.

    Thanks, Sid

    • Pro: It's a really good product idea.
      Con: It's often implemented badly.

      Life insurance is a fairly complex financial product and any meaningful discussion about this is probably best suited to financial coaching at this point in time. However, I will say that I discourage anyone from buying anything until or unless they are willing to understand at least the basic principles behind how it works (which is the point of my financial coaching service). Indexed life is the most complicated, since it combines the most complex form of insurance (universal life) with a complicated investment strategy (equity indexing).

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