The Truth About Whole Life Insurance and Why It’s More Than a “Rich Man’s Roth”

I came across an online article by an anonymous blogger who claimed that the only good purpose for whole life insurance was as a rich man’s Roth. He was certain whole life insurance was only for individuals whose high incomes made them ineligible for the tax-saving advantages of a Roth IRA.

That’s actually pretty funny. Why restrict the incredible advantages of whole life insurance—including the tax advantages—only to the wealthy?

Let’s look at how a Roth IRA works and then compare it to a Bank On Yourself-type whole life insurance policy.

How Does a Roth IRA Work?

A Roth Individual Retirement Arrangement (Roth IRA) is an IRS-approved strategy that allows you to invest money you have earned by making contributions to a Roth IRA plan you have set up. You are not allowed to take a tax deduction for your contribution as you are with a traditional IRA. However, none of the money you take from your plan in the future is taxable. As far as the money in your Roth IRA is concerned, you will not be affected by future changes in the tax rate.

How a Roth IRA differs from a traditional IRA

Roth IRAs are quite different from traditional IRAs.

Chart Comparing Key Differences Between Traditional And Roth IRAsWith a traditional IRA, your contributions are tax-deductible. However, when you withdraw money from your traditional IRA—and you must withdraw specific percentages annually, beginning soon after your seventieth birthday—you must pay taxes on everything you withdraw—at whatever the tax rate happens to be at the time.

See the table for a summary of the key differences between a Traditional IRA and a Roth IRA.

Roth IRAs—like all IRAs—are highly regulated

Roth IRAs, like traditional IRAs, come with many government regulations, including limits on contributions. The rules for 2017 say: If you’re a married couple filing jointly and your “Modified Adjusted Gross Income” is less than $186,000, the most you can contribute to a Roth IRA is $5,500, unless you’ve had your 50th birthday. In that case, you can contribute $6,500.

But if your income is greater than $186,000, your limit is lower. And if your income is $194,000 or more, you can’t contribute anything to a Roth (unless you’re converting a traditional IRA to a Roth IRA).

Confusing? That’s just a quick summary of some of the rules limiting contributions. There are other rules, too: When you can withdraw from your Roth IRA without penalty (that depends on a number of factors), whether or not you can borrow from your Roth (you cannot), limits on the “kind” of money you may contribute (only earned income) and so forth.

Some advisors will say, “Hey, if you can’t contribute what you want to your Roth, put your money in whole life insurance. It’s the Rich Man’s Roth IRA.”

The problem is, they’re portraying life insurance as a second choice. Advisors who fully understand the benefits of a supercharged whole life insurance policy realize a Bank On Yourself-type high early cash value whole life insurance policy should be your first choice—even if you’re ultra-rich!

How Whole Life Insurance Is Better Than a Roth IRA

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This anonymous blogger appears to be a financial advisor, based on his reference to his “clients.” But if he is an advisor, he is shockingly ignorant about some critical life insurance basics.

For example, he says, “Whole life insurance is also known as permanent or universal life insurance.”

Whoa! There are two broad types of life insurance: term and permanent. There are three very, very different kinds of permanent life insurance: Whole life, universal life, and variable life.

If you say that whole life insurance is also known as universal life insurance, you are showing your ignorance.

Here’s one very important way whole life insurance and universal life insurance are not the same:

Both whole life insurance policies and universal life insurance policies contain a “cash value” component—that part of the insurance policy where wealth grows. But with a whole life policy, that growth is guaranteed, based on a schedule that is set in stone—and augmented, in some policies, by dividends (which are not guaranteed).

On the other hand, with a universal life policy—even guaranteed universal life—growth of your cash value is not guaranteed. Veteran life insurance advisor Ken Buccico lists two major disadvantages of universal life insurance that do not apply to whole life insurance:

First, this product [universal life insurance] may [might] not have any cash value, unlike alternative permanent [whole] life insurance products.

Second, the greatest disadvantage of guaranteed universal life is that the timeliness of premium payments is critical to maintain the guaranteed level premium. Other [whole life] policies that contain cash value can provide a source within the policy to cover the required premium to maintain the death benefit; however, a missed or late [universal life] premium payment can jeopardize the guaranteed premium feature, resulting in a policy without a guaranteed premium.”

Because our less-than-well-informed advisor doesn’t understand that the cash value growth of a whole life insurance policy is guaranteed—he makes uninformed statements like:

  • “Every scenario I have ever encountered where an individual has been paying on a whole life policy for an extended number of years, what they were told they would have accumulated by that point has never been even close to what they actually have.

    That’s true for universal life, but not true for whole life insurance. In fact, the opposite is true: Because of the non-guaranteed dividends of some whole life policies, those policy owners virtually always have more—usually, significantly more—than they were guaranteed they would have. In fact, many dividend-paying whole life companies have an uninterrupted track record of paying dividends for more than 100 years!”

  • “Illustrations of potential cash value offered by agents are so often unrealistic.”

    Again, true for universal life, but not true for whole life. Whole life cash value growth (not including dividends) is absolutely guaranteed—in writing. All fifty states regularly audit the whole life insurance companies doing business in their state to ensure that the companies have the reserves to back up their guarantees.

    Furthermore, by law, whole life insurance policy illustrations must show projections based on that guaranteed growth. They are also permitted to show the growth you would have if, over the life of the policy, the company paid dividends no higher than they are currently paying.

  • “A whole life policy that is supposed to make you rich in retirement is a terrible idea. You’ll simply be sending good money into the ether and not necessarily seeing the return you could get with other investments.”

    The poor guy’s talking about universal life and doesn’t even know it. While it’s true that with whole life insurance, you’re not seeing the gains you might get with other investments, you’re not seeing any of the losses, either. For that and other reasons, whole life insurance can be a very good investment alternative.

Our friend confuses stock market returns and whole life insurance growth

This blogger says, “If you’re putting money into a whole life policy in the hope that it will mean smooth sailing in your retirement years, then you are wasting your money.”

That’s backwards!

If you’re putting money into the Wall Street Casino in the hopes that it will mean smooth sailing in your retirement years, it means you weren’t paying attention to what the market has done in the last 17 years or so: two crashes of about 50% or more!

Competitive growth, safety, freedom from most government regulation, and the fabulous tax advantages of whole life insurance make it the smart option, hands down.

Wall Street is the sucker’s bet.

The Importance of Good Whole Life Insurance Policy Design

Mary has a sensible 178-horsepower Kia. Larry has an outrageous 650-horsepower Corvette.
If you want to win a drag race, which car should you drive?

Would you say, “It doesn’t really matter. A car is a car is a car?”

Of course not!

And you shouldn’t think for a moment that all whole life insurance policies are the same, either. A book could be written on the ideal whole life insurance policy—one that combines reasonable cost with superlative cash value growth capabilities, and an increasing death benefit.

I wrote that book. It’s my second New York Times best-seller, The Bank On Yourself Revolution. If you don’t have my book, get my free Special Report on the subject here, which comes with a free chapter from my book.

This blogger doesn’t understand the plain, simple facts about whole life insurance!

Just look at how this anonymous blogger messes with the truth:

Blogger: “This whole life enthusiast wants me to wait 35 years until I start seeing my cash value accrue.”

Gosh, is he really saying that with whole life insurance you’ll have little if any cash value for the first 35 years?

As you can plainly see on my website, you can have a whole life insurance policy with solid growth beginning in Year 1!

Our blogger’s 35-year-old male can see cash value in the very first year—and reasonably expect that by year eight or nine, his cash value grows by more than his annual premium, year after year, after year.

To get that kind of return with any other financial product, you’d need an annual return of more than 8% every single year. Are you skeptical of that? The spreadsheet you can download here demonstrates that it takes an annual return (after any fees) of more than 8% for your annual growth to exceed your annual contribution by year nine—something this high early cash value Bank On Yourself-type life insurance policy does.

  • Download the spreadsheet, then enter any amount you wish in the light blue Annual Contribution box.
  • Choose an Annual Rate of Return and enter that amount in the Rate of Return box.
  • Look in the right column, Difference. The first black (positive) number is the first year your annual growth exceeds your annual contribution. The far left column, Year, tells you which year that is.

Blogger: “Commissions for whole life policies can start at 55 percent of the first year’s premiums and can be as high as 100 percent.”

He needs my book. He’ll see how the type of whole life insurance policies recommended by Bank On Yourself Authorized Advisors cut the advisor’s commission by 50-75%—leaving the advisor with just a small portion of the typical whole life insurance commission.

Blogger: One “aspect of whole life insurance that makes personal finance experts twitchy is that illustrations of potential cash value offered by agents are so often unrealistic.”

No, no, no! Learn the difference between universal and variable life insurance on the one hand, and dividend-paying whole life insurance on the other hand.

The Dual Purposes of a Well-Designed Whole Life Insurance Policy

Our friendly but not-so-well-educated blogger also says, “It’s best to uncouple your life insurance needs from your investment needs.”

He doesn’t say why. I guess he just doesn’t like the idea of dual-purpose products.

He wouldn’t buy a radio that’s also an alarm clock. He wouldn’t carry a cell phone that also takes pictures. He wouldn’t want a refrigerator that has a built-in freezer. And he for sure wouldn’t want a refrigerator that has a built-in freezer and an ice maker.

Just like he wouldn’t buy a financial tool that provides for your financial needs both now and later—a whole life insurance policy!

Here’s another myth about whole life insurance that makes me shake my head in bewilderment …

Blogger: “Whole life is dangerous because it is so expensive. It soaks up so much of your cash. You may not have enough money to buy all the coverage you really need. As a result, many people go terribly underinsured, and it’s the family that pays the price. … Most earners should purchase a sufficient term life policy and a modest permanent life insurance policy.”

That’s pretty amazing. After bashing permanent life insurance—even calling it “dangerous”—he says most earners should have some!

Blogger: “Many financial experts recommend that people … buy term insurance and invest the difference between the term premiums and the whole life premiums.

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Don’t get me started! Let’s say his 35-year-old male buys a 30-year term policy and invests the difference between the term policy’s premium and what he would pay for a Bank On Yourself-type policy.

Sure, in the early years, he could—in theory— be investing the difference. But before too many years have passed, he will be selling off his investments to fund his high term policy premiums. That’s because term insurance starts out cheap but ends up extremely expensive.

Over 50 years, he could save about $30,836 in premiums by getting a Bank On Yourself-type policy, instead of buying term insurance.

Besides, “People don’t buy term and invest the difference,” said David F. Babbel, professor at the Wharton School of the University of Pennsylvania and co-author of “Buy Term and Invest the Difference Revisited,” published in the May 2015 issue of Journal of Financial Service Professionals.

“They most likely rent the term, lapse it and spend the difference,” he said.

Bank On Yourself-Type Whole Life Insurance Policies to the Rescue

Bank On Yourself really does give you the best of both worlds:

  • You can access your principal and growth, with no taxes due under current tax law
  • Immediate cash value, with growth that gets better every year
  • Premiums that never increase—even when you’re 100 years old (imagine a term life insurance policy offering that!)
  • A death benefit that grows over time and is income tax-free to your heirs
  • Flexibility and no government restrictions or penalties, compared to Roth IRAs

You can have all the advantages of the so-called “Rich Man’s Roth” (and more!) with a Bank On Yourself whole life insurance policy—even if you’re not rich

Discover for yourself how people of all ages and incomes are enjoying real tax-saving, wealth-generating, free-from-worries benefits from the “Rich Man’s Roth!

To find out more, request a FREE Analysis and Personalized Solution—customized to your specific situation.

When you request a free Analysis, you’ll get a referral to one of only 200 financial advisors in the US and Canada who have met the rigorous training and requirements to be a Bank On Yourself Authorized Advisor. The advisor will look at your overall financial picture to find creative ways you may be able to fund a bigger policy than you thought possible—sooner than you thought possible—sometimes with little or no increase in your out-of-pocket cost.

When you request a FREE Analysis, you will discover:

  • The guaranteed minimum value of your plan on the day you plan to tap into it … and at every point along the way
  • How much income you can count on having during your retirement years
  • How much you could increase your lifetime wealth—just by using a Bank On Yourself plan to pay for major purchases, rather than by financing, leasing, or directly paying cash for them
  • How you can achieve your short-term and long-term financial goals in the shortest time possible
  • Answers to other questions you may have

No two plans are alike. Your policy will be custom tailored to your unique situation, goals and dreams.

Don’t procrastinate! Request your FREE Analysis here now, while it’s fresh in your mind!

Bill Williams’ AHA Moment: How Bank On Yourself Freed Him from 401(k) Loans and Mutual Funds

Bill Williams is an enthusiastic believer in the Bank On Yourself concept because of how it has helped his family financially. He wrote to me several years ago, and I included his letter on page 228 of my 2014 New York Times best-selling book, The Bank On Yourself Revolution:

Thanks for all the good things you are doing, Pamela. I am working with my Bank On Yourself Advisor to set up my third policy, and I am so appreciative of her guidance and expertise. She has been tremendously supportive.

The real “snake oil” is all of the purported advice about savings and investing we have been fed by the “experts” in the past. I get so upset by the advice to invest with before-tax dollars into 401(k)s or 403(b)s.

I’m over sixty years old and know when I turn 70½, I’m going to have to take required withdrawals from my plans and have the added burden of paying taxes on them. After all, the IRS wants to get its hands on the taxes they let me avoid paying all those years.

I wish not only that I had learned about Bank On Yourself earlier, but that the concept could be taught to the masses when they are young enough to get the maximum benefit from it.

Here’s why I say that: I think of all of the purchases I’ve made through the years where Bank On Yourself would have been a much better means to fund them. As an example, my son’s college expenses, which I paid every cent by selling stock and mutual funds and taking a loan from a 401(k).

Needless to say, my son received a great education (to his credit), but dear old dad has nothing to show for it. I had to put money into the stocks, 401(k), and mutual fund, so I had the resources—which could have been so much more powerful in a Bank On Yourself policy! It’s as simple as that. If I had done that, I would now still have the policies, which would have even more value.

I am depleting an IRA to fund my third policy and to help fund my first two Bank On Yourself-type policies. I just hope I live long enough to enjoy all the benefits.

Bill Williams writes again, about Bank On Yourself, tax-free retirement, and dividend-paying whole life insurance

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52% of Americans Will Have to Reduce Their Lifestyle in Retirement

52% of American households are at risk of not being able to maintain their standard of living in retirement – even when factoring in potential proceeds of a reverse mortgage.

That’s according to the Center for Retirement Research at Boston College.

Let’s take a look at three critical reasons for that… and what you must do now to protect yourself…

Problem #1: People continue to live longer, but aren’t working longer

According to the Social Security Administration, 25% of people turning 65 today will live past 90, and one out of ten will live past 95, yet most financial planners base their projections of how much money you’ll need on your living to age 85 or so.

What if you’re one of the lucky ones who hangs on until 100 or longer? And just how “lucky” will you feel if you can’t provide for yourself during those final years?

Solution: Assume you’ll live to at last age 100 when determining how long your money will need to last you.

Problem #2: Underestimating health-care and long-term care costs in retirement

The numbers are shocking, and almost no one is accurately accounting for this: A 65-year-old couple retiring now will need $245,000 just to cover out-of-pocket health-care costs during retirement, PLUS another $255,000 to cover one average stay for one person in a nursing home.

Whoa! That’s half a million dollars you’ll need just for medical care… but most people close to retirement don’t even have that much in total retirement savings. [Read more…]

Trump Tweets, Black Swan Events and Your Money

How much does your financial future depend on a 140-character Trump tweet, stroke of a pen on an Executive Order, or an off-hand comment to a reporter?

A lot, as these recent news headlines reveal:

  • “Trump Sinks Pharma Stocks on Medicare Price Negotiation”
  • “Dollar Dumps Most in 30 Years as Trump Raises Doubt Over Strong Dollar”
  • “When Trump Tweets, Wall Street Trades – Instantly”
  • “Trump, Not the Fed, Is What Moves Markets Now”
  • “Toyota Stock Drops Immediately After Trump Tweet”
  • “Trump’s Executive Orders Send S&P 500 to an All-Time High”
  • “Dow Jones Industrial Average Sells Off After Trump’s Executive Order on Immigration”

As you can see, when President Trump tweets or speaks, the markets react – in some cases violently.

Whatever your opinion of Trump is, there is one thing we can all agree on:

We are in uncharted waters. We have never had a president like Trump. We’ve never had an administration like Trump’s. There is no historical precedent for this. [Read more…]

Five Pieces of Free Financial Advice on Saving and Investing You Should Avoid

We all love free advice. Why pay for advice if someone is willing to give it to you for free?

Some advice will cost you little or nothing if it’s wrong. “You should wear these shoes with that suit.” “Try the catch-of-the-day. You’ll love it!” “I think you should turn left here.”

Other bad advice can be much more costly—both now and for the rest of your life.

This article focuses on free financial advice. We’ll tell you why five bits of so-called “wisdom” you’ve heard over and over again are wrong.

We’ll give you some tips on choosing sources of free financial advice you can trust, while avoiding all the dumb financial advice that’s out there.

Why Free Financial Advice Is Often Dumb Financial Advice

[Read more…]

SuperMoney Interviews Personal Finance Expert Pamela Yellen on Savings and Investing Strategies

Pamela Yellen, Founder of Bank On Yourself

Pamela Yellen, Founder of Bank On Yourself

I was recently interviewed by SuperMoney, a website that rates various financial products and the companies that provide them.

In this wide-ranging interview, I answered questions like these:

Why did you decide to start Bank On Yourself?

I reveal the frustrations my husband and I experienced following the conventional wisdom about investing and retirement planning. Maybe you can relate…

If someone were to say to you, “I don’t have the expertise to handle my finances. I’ll just hire some investment firm to deal with them,” how would you respond?

Here I discuss how and why 80% of all mutual funds, financial advisors and investment advisory services underperform the overall market. If the experts can’t even do it well, how can we regular folks be expected to? [Read more…]

Could the Government Seize Your 401(k) and IRA Money?

Is it far-fetched to wonder if the government could take control of your retirement savings in 401(k)s and IRAs?

Or is that just a paranoid conspiracy theory?

The fact of the matter is that it’s not far-fetched, or a conspiracy theory. The groundwork has already been laid.

And the government already gave banks the green light to seize your bank accounts.

Read on for the facts – and I urge you NOT to discount the importance and urgency of this issue affecting your hard-earned savings…

The Government Has BIG Plans for Your Retirement Savings

An article in American Thinker titled “The Feds Want Your Retirement Accounts” revealed that, “Quietly, behind the scenes, the groundwork is being laid for federal government confiscation of tax-deferred retirement accounts. Slowly the cat is being let out of the bag.”

And Bloomberg reported that,

The U.S. Consumer Financial Protection Bureau is weighing whether it should take a role in helping Americans manage the $19.4 trillion they’ve put into retirement savings.”

For the last 18 months, the Treasury Department has been testing the “myRA” program – which Obama created through executive order – no Congressional approval needed.

The myRA, which stands for “My Retirement Account” supposedly “guarantees a decent return with no risk of loss.”

And the only investment allowed in this account is a low-yielding Treasury security.

Of course, the Treasury wants to get more people signed up for this program, because it means more funds flowing right back into the U.S. Treasury to help the government meet its voracious borrowing needs. How convenient… [Read more…]

Dalbar 2016 Report: Many Investors Haven’t Even Kept Up With Inflation

The latest report from DALBAR reveals the harsh reality about the actual returns stock market investors have been getting for the last 30 years.

Would it surprise you to know that many investors haven’t even been able to keep up with inflation for the last three decades?

Many investors haven’t, according to the 2016 Quantitative Analysis of Investor Behavior.

Here are the facts about actual long-term investor returns

The average investor in asset allocation mutual funds (which spread your money among a variety of classes) earned only 1.65% per year over the last three decades!

These investors didn’t even come close to beating inflation, which averaged 2.6% per year.

The average investor in equity mutual funds averaged only 3.66% per yearbeating inflation by only 1% per year. (Was that worth the roller-coaster ride and sleepless nights?) [Read more…]

What’s In “The Big Black Book of Income Secrets”?

If you receive emails from investment advisory services, you may have gotten a sales pitch for The Big Black Book of Income Secrets from the Palm Beach Research Group.

The promo promises you’ll discover “30 unique income tools” in The Big Black Book of Income Secrets.

The offer entices you with a “risk-free 60-day trial subscription to the Palm Beach Letter.” If you’re not satisfied before the two-month trial is up, you’re told you can get a refund and keep the book and some “bonus” reports that are included in the offer.

To find out if The Big Black Book of Income Secrets lived up to its promises, we signed up for the “Platinum Subscription” for $99 for the first year, which comes with additional “bonus” reports.

Three weeks later, the book arrived, containing 22 (not 30 as promised) strategies, with a cover letter from the Publisher, Tom Dyson, explaining that we could log into their website to access the reports we signed on for and back issues of the Palm Beach Letter. (I guess for $99, they can’t afford to mail you hard copies of the reports.)

The First Red Flag in The Big Black Book of Income Secrets is “Income For Life”

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What Infinite Banking and Nelson Nash Missed

I am infinitely grateful to Nelson Nash for introducing me to the Infinite Banking Concept®. It’s a very powerful concept that brings to the table Nelson’s life-long study of the Austrian School of Economics.

In this article, I described what Nelson got right about this concept, and my own life-changing experience of how it lets you “Become Your Own Banker.”

However, here are several things in his ground-breaking book that I take issue with, and that have caused unnecessary confusion for readers…

1. His first book, Becoming Your Own Banker®, was copyrighted in 2000.

[Read more…]