Confessions Of A Life Insurance Agent: Whole Life Is A SCAM
In this article, we are going to talk about why I personally do not buy whole life insurance. If that sounds good, let's hop into the video now real quick before anyone freaks out or loses their mind.
This is just a video on why I personally don't buy it. I won't say if it's good or Bad for you, I think in this day and age anyone could be offended about anything like I could. I could make a video about why I personally choose not to eat green eggs and ham, and there would be somebody out there in the comments saying but ted.
I love green eggs and ham and the fact that you don't like it is a personal insult to me and all of my family, shame on you, ted, And just like okay! Well that you know that's fine, we're not always going to agree on what's good or bad, but I think I have a very unique approach to this because remember I am a licensed life insurance agent. I am licensed to sell every type of life insurance policy that there is, and I would stay away from my whole life and universal life. Although I have a license to sell both of those policies, I have never Once sold it and I have never sold whole life insurance.
For the same reason, I've never sold an amazon fba course. I think it's a rip-off and I don't think you need it. So for the purpose of this video, I'm just going to show two different scenarios where you could basically buy term insurance or buy whole life insurance.
Confessions Of A Life Insurance Agent: Whole Life Not Legit
Now, for anyone who doesn't know the difference between term insurance, is you basically pay life insurance for a specific term? There are 10 years, 15 years, 20 years, 25, and 30 years. For this example, I'm going to do a 30-year term. That's actually what I have on myself and that's what I got for my wife as well.
So I'm going to look at a 30-year term for 250. 000, as opposed to a whole life policy, for also 250 000, now the biggest difference other than the price, of course, between term and Whole life is whole. Life does have a guaranteed death benefit so, for example, with the term, if you pay for that 30-year term 30 years pass and hey you're still alive and kicking that policy now is over and there's no benefit to you.
There is no payout if you haven't died with whole life insurance. You basically pay on it for your entire life and then, when you die, you will be guaranteed a benefit. It also has the possibility to build up some cash value that you can cash in, but usually, the cash value is much much lower than the face value of the policy which we will get into later in the article.
But so, basically, all I need to know term life insurance is cheaper, but the death benefit is not guaranteed. Whole life insurance is much more expensive, but there is a benefit in the End.
For a moment, we have a term life insurance of 30 years for 18 per month, and then we have a whole life policy that you're, basically just going to have your entire life and you're paying 99 per month. Now, for this specific example, you'd be paying 18 a month for 30 years or you'd be paying 99 a month for your whole life. There are whole life insurance policies Where you can do it paid up or prepaid.
Basically, you pay a lot up front and then you don't have to pay on it again and they're still like the guaranteed death benefits. But for this just to make numbers easier, we're going to assume that you're paying 18 per month for 30 years and 99 per month. For your whole life, so let's assume for both of these scenarios, that you can get one Of these plans when you're 30 years old, so rather gonna, be paying on it until you're 60 with the term life insurance or you're, probably gonna be paying on.
Until you're 85, which is, let's just say, the life expectancy in America, so what I'm going to do is get out my handy-dandy calculator, I'm going to look at that 30-year term of 18 per month. Multiplied by 12 months is 216 dollars per year. So, basically, that's What you're paying every month towards this term life insurance now what if, instead of paying that amount, you took that 216 dollars and you just invested it in the s p.
500. . So I will go to my compound interest: calculator next and you're, going to be investing it from age 30 to 60, so you're gonna have 30 years to grow and we are going to assume an average annual return of eight percent because historically it's gotten anywhere Between nine and eleven percent, so let's be a little bit conservative here and call it eight.
So, basically, over 30 years, if you just invested that term life insurance instead you would get 26 426 dollars and 71 cents now remember if you were to die anywhere in that 30-year term, you get a payment of hundred and fifty thousand dollars, but Even if you Don't die and we're hoping that you don't die your opportunity cost is twenty-six thousand dollars because that is what you would have gotten. Instead, if you invested that eighteen dollars per month in the s p 500.
But now, let's run that same scenario at 99 per month times 12 months is 1188. . So remember: you bought this whole life policy when you were 30 and we're going to assume that You're going to live to the age of 85, so you'll be paying 99 a month on this thing for 55 years.
Let's see what would happen if you invest that money instead so again, you're starting with zero you're putting in 1 188 a year because that is 99 per month. You have 55 years that you're paying into it we're going to assume that you could be getting an 8 in the s p, 500. By the time you actually Go and die.
Your opportunity cost is over 1 million dollars and remember the face value for this policy. This whole life insurance policy is only 250 000, the same amount for the term insurance policy. Now the difference is if you just if you decided to not go with the term insurance, and you just invested that 18 bucks a month, You would have 26 000, which is great, but not necessarily life-changing.
However, in the whole life scenario, if you're going to instead of getting whole life, just put it away in the s p 500. Over that same amount of time, you would have well over a million dollars and again that policy is only worth 250 000 in the term life, the policy's still worth 250 000. But what you Lose in opportunity cost is 26 grand, so the opportunity cost for the whole life insurance is way way more.
Last time I checked a million bucks is a lot more than 26 000. . But now, let's take a look at one other scenario, because what if you do die within those 30 years or what, if you do diet you know a year, 31 or whatever? It is because the whole point of having insurance is you never know? What's going to happen, So you do want to be able to protect your family in case of a disaster, and again I am saying this is someone who's licensed to sell any type of life insurance policy.
There is, I have term insurance. My wife has term insurance. If any of you guys ask me to sell your whole life, I will say no because I think it's a rip off so let me just put that out there Right now.
But let's take a look at what happens if you buy term life insurance and then you invest the difference of the whole life insurance. So for this, I'm going to get my calculator back out and we are going to do 99 minus 18 per month. So 81 multiplied by 12 months, equals 972 dollars.
Now, if we go back to our compound interest, calculator - And I put in 972 dollars over that same 55 years, because basically, what we've done is: we've decided to buy the term life insurance at 18 bucks a month. We've looked at the whole life insurance of 99 we've taken the difference, which is that 81 bucks and we're putting that away in the s p 500. For the same amount of time, it would have bought that whole life insurance policy so now when we calculate that you are left with 891 165 dollars.
So let me explain this real quick. We just saw a couple of scenarios so number one. You buy term life insurance and for 30 years you basically have this.
250 000 death benefit. If you die, if you don't die, which again we're hoping that you won't, that policy goes away with whole life insurance. You have that Same 250, 000 death benefit, but the opportunity cost is over a million bucks because, instead of paying 99 bucks per month for 55 years of whole life insurance, you could be investing it with the opportunity cost for the 30-year term being a lot lower.
It's at 26 000 and that's assuming that you would be getting eight percent in the s p. 500. But now we've looked at the scenario.
What if you actually want insurance in case you die in 30 years, but you also want to invest so you buy term and you invest the difference. If you buy that term life insurance that 30-year term, you still have that protection, which is the insurance, and by the time you're 85. You have 891 000, which is much more than that.
250. 000. Whole life face value.
So, basically, here Is why it doesn't make sense, in my opinion, to buy whole life insurance. What the insurance company is going to do is we just saw it in this compound interest, calculator they're, going to take your premiums the 99 per month, and they are going to invest it and basically over your life they're, going to make way more by investing that Money than whatever the Death benefit is to you. We just saw this.
I mean if they're running the algorithms and you're going to live to 85 they're, going to make a million dollars off of your money, and then they're going to pay you 250. 000. Now one other thing that whole life insurance agents might try to sell you on is the cash value so with a whole life policy.
It has a face value when you die, but it also builds up a cash value that you can pretty much cash out at any time. But the important thing to know is usually 99 of the time. You will never get the death benefit and the cash value.
That is a big misconception. Most people will never get that you'll, never get 250 000 plus the 50 grand of cash value and I'm just using 50 grand as an arbitrary number. But what happens most of the time Is, that you will have some life insurance policy and are building cash value over time, and let's say that cash value gets to 50 000 and by the time, you're 80.
You want to cash it out because you want to go on some like last, like Europe bucket list trip or whatever, so you take that fifty thousand dollar and now that whole life policy is null and void, it's dead, they might try to convince you. That's a better idea, though, because with term insurance you know, there's nothing, but what happens is most people still what they're paying into that whole life policy, especially when you look at what they could be getting in investing. It is so much more than that cash value that they would get out of it.
So this leads me to one last point here, so why do some financial services Investing companies even Warren Buffett's company, Berkshire Hathaway? Why do they buy whole life insurance policies? There's one specific reason: Warren Buffett, Berkshire Hathaway these guys that are really smart. With money. These hedge fund managers, they would never buy whole life insurance policies on themselves, but what they would do is they would go to older people who have a cash value and they would try To convince that older person to cash out with them.
Instead, so they would buy that person's whole life insurance policy. So let me explain: you have an old guy here. Let's call him joe, he is 80 years old.
He has a cash value of 50 000 in his whole life policy, but the face amount is 250 grand when he dies now joe is thinking man I kind of want to enjoy this money now I want to get my 50 000 now because I want to go have a big family reunion with my grandbabies before I pass away, so I want to get this 50 000, so he could call the life insurance company and cash it at fifty thousand dollars or a guy like a warren Buffett, could come along and buy his life Insurance policy, he could say, hey joe Mr joe you're gonna get fifty Thousand dollars from the insurance company. What, if I just buy this life insurance policy? For you, you name me the new beneficiary, but instead of fifty thousand dollars, I will give you sixty grand old man. Joe was thinking well great.
I get ten thousand dollars more money. If I work with Berkshire Hathaway so then he sells his life insurance policy to Berkshire Hathaway Naming Berkshire Hathaway as the beneficiary. Now, of course, in five or ten years, joe dies, so the Berkshire Hathaway company they paid 60 000 up front for the next five years or so they're paying 100 bucks a month, and then they get 250 000.
It only makes sense for Berkshire Hathaway to do this deal if the old guy old joe, is close to death Because the closer he is to death, the less amount of time he'll have to pay. For a guy who's, 80 or 85 or 90, because he's only going to have a couple years left and then you get, you know you pay 50 or 60 grand
You pay 100 bucks a month for a couple of years, and then you get a quarter million dollars. So when whole life insurance agents say stuff like This is a wonderful investment, even Warren Buffett. Does it wrong.
He does not do it for himself. He waits until some poor schmuck is 85 years old and then he goes and offers the cash value for him, and they do that a lot by the way they buy those all the time for old men, but the moral of the story, you guys is, I personally would never get whole life insurance on me and again. This is coming from someone Who is a licensed life insurance agent, and I hope this video is helpful to you I'll see you guys in the next one peace you.
You can read more about life insurance by visite our top category article HERE
Post a Comment