Can antone honestly defend the sale of Whole, Universal, and VUL life insurance?

Question

All of the true financial experts agree that whole life, universal life and VUL policies are rip-offs. Is it only the ignorance of the public that allows these policies to continue to be sold?

My opinion, which is widely accepted among true professionals (not commissioned insurance salesman) is that mutual funds/stocks/ETFs in self-directed type accounts coupled with fixed term life is the only logical choice. Please defend whole, universal and VUL if you can.

Answer 1

The cheapest kind of insurance is free insurance right?  well imagine if i told you that I could give you all the money you ever paid into your life insurance and double or even triple it for your retirement.  then what if i told you that all the gains you ever made would be TAX FREE!  and what if i told you that even after you took all the cash value out for retirement you would still have money left over to cover funneral and estate taxes upon your death no matter what age that is.  That is what a whole life policy does.  first of all can a mutual fund promise me that i wont loose money?  no but a whole life policy has a guaranteed cash value at any given point.  second the way to properly withdraw money from a cash value policy is through a loan, i know people say y would i borrow my own money, but taking it out as a loan makes it not subject to income tax.  so you have a stream of non reportable income because it is a loan and no one pays taxes on loaned money.  you dont have to pay that loan back the money you have withdrawn is subtracted from your death benifit so it is taken at death.  most if not all of the interest on the loan can be paid by the policy itself (dividends and interest being accumulated).  plus you have no idea how many people 65+ want life insurance to pay for final expenses or because they have a second mortgage or debt due to medical bills. life happens not everyone has their bills paid off and a ton of money sitting around in their older age.  by then it is often too expensive or they are in bad health.  if they had purchased a policy when they were yound and healthy they would have insurance no matter what at a locked in rate.  life insurance is a great way to supplement tax deffered retirement accounts that now are being depleated faster because the retiree is withdrawing income and taxes at the same time. ask any 70+ year old person if they would like to have money to leave to their family no matter what age they die.  many of these policies can be paid up by age 65 so they dont pay for them forever.

Answer 2

Sure, I can.

Sometimes, the POINT of the insurance is to avoid estate taxes.  It's better to pay, say $1,000,000 for a paid up whole life policy, with a $1,000,000 payout to the person of your choice, than it is to give $500,000 to uncle sam.  

Whole life is ALSO particularly useful for key man type insurance - where you KNOW eventually one of the partners is going to kick off, the BUSINESS is picking up the tab, and can write off the entire premium from the business income taxes, and the premium will always be level.

Lastly, if the "family business" is something that's cash-flow poor, you're going to need something like whole life to pay off the estate taxes when the owner eventually dies, so the kids don't literally have to sell the farm to pay the taxes.  

Transfer of assets is the basic purpose, without attachment from Uncle Sam, either through final medical expenses paid by Medicaid, or estate taxes.

It's a real need, filled by a real product, not a ripoff.  For MOST families, though, Term  & Invest the Difference is a better option.

**That's a whole life excuse.  I'm not really much into Universal or VUL.**

**and for Kristen - life insurance as an investment, is aimed at people who are really bad at math.  I always tell people, RUN THE NUMBERS.**

Answer 3

One thing you should keep in mind is it is your job to educate the client give them the pros and cons and even though you think it is a bad idea once in a while you will find a client that does not agree with you.

I sell UL as a payroll deduction to low income employees the premiums start at $5 per week.  This segment of society is overlooked by agents selling individual policies and rightly so it is not worth an agents time to sell a policy with a $240 annual premium. These low income employees rarely ever make the effort to purchase insurance on their own even though many of them know someone who had a death in the family and felt the pain of trying to scrape enough money together for the funeral. If these person buy term very few of them would ever start the investment required to provide assets in the future. Then the few that started the investment would ever keep it once it reached a nice amount they would cash it in.

VUL, very rarely a good idea. But lets say you find someone who is already maxing out their 401(k), has 6 months cash reserves had plenty of mutual funds that are already causing a tax burden he wants to avoid. He also has plenty of extra income they want to invest and also has a need for a million dollars of life insurance. Buying a VUL would give them the insruance and help them avoid taxes on the growth. Is this a bad idea?

Whole life is never as good as a UL. UL can be set up to preform just like a whole life policy but it provides more flexibility.

One thing to remember people will defend the particular field they work in. I think stock brokers rip people off selling individual stocks when a much better choice is mutual funds.